CONFORMED
COPY

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]

For the transition period from __________ to __________

Commission file number 333-02015

CYTOGEN CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE 22-2322400
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

600 COLLEGE ROAD EAST, CN5308, PRINCETON, NEW JERSEY 08540-5308
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 750-8200.

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the registrant's shares of Common Stock
held by non-affiliates of the registrant on February 1, 1999, based on $1.28 per
share, the last reported sale price on the NASDAQ National Market on that date,
was $71,957,705. The determination of affiliate status for this purpose is not
necessarily a conclusive determination for other purposes.

The number of shares of Common Stock outstanding as of February 1, 1999 was
64,618,331 shares.

DOCUMENTS INCORPORATED BY REFERENCE

FORM 10-K
DOCUMENT PART
-------- ---------

Portions of the definitive Proxy Statement with respect to the III
III 1999 Annual Meeting of Stockholders (hereinafter referred to
as the "Proxy Statement"), but specifically excluding the
sections titled "Compensation Committee Report on Executive
Compensation" and "Performance Graph", which shall not be deemed
to be incorporated by reference herein.

PART I

ITEM 1. BUSINESS

GENERAL

CYTOGEN is a biopharmaceutical company engaged in the development,
commercialization and marketing of products to improve diagnosis and treatment
of cancer and other diseases.

Historically, we have emphasized research and development of a broad array
of potential products, based on monoclonal antibodies and other technologies.
Having identified and commercialized products which we believe have substantial
potential, we have:

- Conducted or sponsored clinical studies to evaluate existing
products in additional indications;
- Focused on development of technology with near term commercial
significance;
- Reviewed current research and development programs to assess
their commercial potential; and
- Recently curtailed basic research expenditures in order to allocate
resources toward implementing our business strategy.

During 1998, we reviewed our assets and business prospects to determine
which projects demonstrated adequate potential for a continued investment of
corporate resources. As a result of this review, we:

- Terminated our ALT program.
Our subsidiary Cellcor, Inc. ("Cellcor") had been developing
Autologous Lymphocyte Therapy ("ALT") for the treatment of
metastatic renal cell carcinoma ("mRCC"), a life threatening
kidney cancer for which there are no adequate therapies. We had
planned to submit a Biologics License Application ("BLA") for ALT.
Cellcor completed pivotal Phase III clinical trials of ALT in mRCC
patients in January 1997. Although we believe the results of the
trials are favorable, ALT was not considered a priority for
allocation of available resources. We halted our preparation for
submission of the BLA and closed our Cellcor facility in September
1998.

- Sold our interest in Targon Corporation.
Our review determined that the projects under development by
Targon Corporation ("Targon") were not consistent with our
corporate strategies. During August 1998, we sold our interest in
Targon to our partner in the venture, Elan Corporation plc
("Elan") for $2 million in cash. In addition, we received $2
million from Elan in exchange for a convertible promissory note.
- Offered for sale and sold our manufacturing and laboratory
facilities.
We determined that outsourcing manufacturing of the
Company's products is more economical and consistent with our
strategies. As a result, we offered the facility for sale and
completed the sale in early January, 1999. We also concurrently
entered into an agreement for the continued manufacturing of
ProstaScint and OncoScint at the facility.

Our Products
We introduced to the market during 1997 our two principal products, each of
which have been approved by the FDA: ProstaScint(R) (kit for the preparation of
Indium In111 Capromab Pendetide) and Quadramet(R) (Samarium Sm153 Lexidronam
Injection). Our OncoScint(R) CR/OV imaging agent is also approved and marketed
as a diagnostic imaging agent for colorectal and ovarian cancer.

CANCER DIAGNOSTIC IMAGING PRODUCTS

Our cancer diagnostic products, ProstaScint and OncoScint, are
monoclonal antibody-based imaging agents for prostate, colorectal and ovarian
cancers. These products utilize our proprietary targeted delivery system,
employing whole monoclonal antibodies, to deliver the diagnostic radioisotope
Indium-111 to malignant tumor sites. A radioisotope is an element which, because
of nuclear instability, undergoes radioactive decay, thereby emitting radiation.
The imaging products are supplied to hospitals and central radiopharmacies
without the radioisotope. Prior to patient administration, the radioisotope is
added to the product by the radiopharmacist using a simple liquid transfer
procedure we have developed, thereby creating the radiolabeled monoclonal
antibody product.

During an imaging procedure, the radiolabeled monoclonal antibody
product is administered intravenously into the patient. The antibody travels
through the body seeking out and binding to tumor sites. The radioactivity from
the isotope that has been attached to the antibody can be detected from outside
the body by a gamma camera. The resultant image identifies the existence,
location and extent of disease in the body. Based on clinical studies conducted
to date by physicians on our behalf, the imaging agents may provide new and
useful information not available from other diagnostic modalities regarding the
existence, location and extent of the disease throughout the body. We believe
that this information has the potential to affect the way physicians manage
their patients' individual treatments.

PROSTASCINT. ProstaScint is a diagnostic imaging agent utilizing a
monoclonal antibody which targets prostate specific membrane antigen ("PSMA"), a
protein expressed by prostate cancer cells and, to a lesser extent, by normal
prostate epithelial cells. We are the exclusive licensee of the antibody
utilized in ProstaScint. ProstaScint is prepared by combining this antibody with
the radioisotope Indium-111 prior to intravenous administration. Due to the
selective expression of PSMA, the ProstaScint imaging procedure can detect the
spread of prostate cancer. Since the patterns of spread of prostate cancer can
vary substantially from one patient to another, by identifying the unique
pattern of metastases in a particular patient, we believe that ProstaScint aids
physicians in the selection of appropriate treatments to meet the special needs
of that patient.

In 1996, we received FDA approval to market ProstaScint in two clinical
settings:

- As a diagnostic imaging agent in newly-diagnosed patients with
biopsy-proven prostate cancer thought to be clinically localized after
standard diagnostic evaluation and who are at high risk for spread of
their disease to pelvic lymph nodes; and
- For use in post-prostatectomy patients in whom there is a high suspicion
that the cancer has recurred and has spread.

The risk of spread of prostate cancer in both newly-diagnosed and recurrent
disease patients is determined by several factors, including the stage of the
disease when initially diagnosed, microscopic evaluation of the primary tumor,
and the prostate specific antigen ("PSA") level. PSA is a widely used blood test
currently used for detecting and monitoring prostate cancer.

We believe that ProstaScint has clinical utility in newly diagnosed
patients with prostate cancer who are thought to be candidates for therapies
such as:

- Radical prostatectomy; and
- External beam radiation therapy.

Before a physician decides upon a course of therapy, it is critical to
determine whether the prostate cancer has spread to other parts of the body,
thereby dramatically reducing the likelihood of successful treatment. Studies
from The Johns Hopkins University and Stanford University Medical Center have
shown that almost one-third of the prostate cancer patients treated at these two
institutions who have undergone prostatectomy or radiation therapy experienced
disease recurrence within five years following treatment, and half of the
patients had recurrence of their disease within ten years. Prior to the
availability of ProstaScint, determining whether newly diagnosed disease was
limited to the prostate or had spread distantly was based upon statistical
inference from the biopsy appearance of the tumor and the patient's serum level
of PSA. Conventional imaging methods, such as computed tomography, magnetic
resonance imaging and transrectal ultrasound, are all relatively insensitive
since they rely on anatomic structure (form) and therefore require that the
normal structures (i.e. lymph nodes) become enlarged or altered in shape to
indicate suspicion of malignancy. The ProstaScint scan images disease based upon
function (expression of the PSMA molecule) and, therefore, can image low volume
disease not readily detectable with conventional procedures. A clear
understanding of the existence and location of any prostate cancer metastasis is
crucial in selecting the most appropriate form of treatment to be administered.

In the U.S., following prostatectomy, prostate cancer patients are
monitored to ascertain changes in the level of PSA. In this setting, a rise in
PSA is strong and presumptive evidence of recurrence of the patient's prostate
cancer. Knowledge of the extent and location of disease recurrence is a critical
consideration in choosing the most appropriate form of treatment. Patients whose
disease is confined to the prostatic fossa may have the potential to be cured by
receiving "salvage" radiation therapy; patients with more widespread disease are
unlikely to benefit from such an approach and instead systemic treatment such as
hormonal therapy should be considered. We believe that the results of a
ProstaScint scan performed prior to radiation therapy to the pelvis may help
predict which recurrent disease patients are likely to benefit from salvage
radiation therapy. Approximately 70% of recurrent disease patients currently
treated with salvage radiation therapy fail to achieve long-term control of
their disease, since the cancer has already metastasized to other points in the
body. A prospective study is planned to evaluate ProstaScint in this setting.

PROSTASCINT MARKETING, SALES AND DISTRIBUTION

According to the American Cancer Society, about 185,000 American men were
diagnosed with prostate cancer in 1998, of whom approximately 20% will be at
high risk for metastatic spread of their disease. In addition, estimates
indicate that in 1998, 40,000 to 60,000 patients previously treated for prostate
cancer will develop symptoms of recurrent cancer which has not yet progressed to
the point of skeletal involvement. We believe that there are approximately
75,000 to 100,000 patients with prostate cancer in the U.S. that are candidates,
based on current indications, to receive a ProstaScint scan each year.

In February 1997, we announced the commercial launch of ProstaScint, which
is co-marketed with the urological division of BARD, a marketer of a broad range
of urology products exclusively to the urology community. Pursuant to our
agreement with BARD:

- BARD is responsible for the promotion of ProstaScint to
urologists, the group of physicians most likely to order or generate
referrals for ProstaScint scans
- Our marketing activities are focused on the training of the
nuclear medicine imaging community, including those physicians most
likely to perform ProstaScint scans;
- We are responsible for the manufacture and distribution of
ProstaScint as well as instructing physicians in its proper use;
- BARD will make payments to the Company upon the occurrence of
certain milestones; and
- BARD will receive performance-based compensation for its services.

Our agreement with BARD has an initial term of ten years and is subject to
renewal.

In 1997, we entered into a distribution agreement with Faulding (Canada),
Inc. ("Faulding") related to distribution and sale of ProstaScint in Canada.

ProstaScint is a "technique-dependent" product that requires a high degree
of proficiency in nuclear imaging, as well as a thorough appreciation of the
information the scan can provide. We believe that this information regarding the
existence, location and extent of disease has the potential to assist a
physician in making appropriate patient management decisions. We have
established a network of accredited nuclear medicine imaging centers through our
PIE(TM) ("Partners in Excellence") Program (each accredited center, a "PIE
Site"). Each PIE Site receives rigorous training, undergoes proficiency testing,
and is subject to ongoing quality assurance protocols. To qualify as a PIE Site,
each center must be certified as proficient in the interpretation of ProstaScint
scans by the American College of Nuclear Physicians. We developed this program
in preparation for the launch of ProstaScint in February 1997. At the end of
1998, there were over 234 PIE Sites, including a majority of the National Cancer
Institute designated Comprehensive Cancer Centers. ProstaScint is available only
at PIE Sites.

We plan to add PIE Sites on a selective basis in order to ensure that new
sites are adequately qualified and committed to a minimum number of scans for
training purposes At the present time, we bear partial expense of qualification
of each site.

We currently employ 13 field representatives, each of whom is a certified
or registered nuclear medicine technologist with experience working in a nuclear
medicine department. These field representatives assist in training of
physicians and qualification of nuclear imaging centers as PIE Sites, and
provide BARD marketing representatives with sales assistance and technical
support of ProstaScint and its usage.

We believe that approximately 80% of patients with prostate cancer are
managed by urologists, with the remainder being managed primarily by medical and
radiation oncologists. Through a Joint Marketing Committee, the Company and BARD
coordinate our respective educational and promotional activities to ensure that
PIE Sites receive appropriate patient referrals from urologists and that future
PIE Sites are located in medical facilities served by urologists who are
ordering the ProstaScint test. The product is not marketed directly to managed
care organizations or other payor groups, however, we maintain points of contact
with reimbursement specialists for physicians, patients, and payors to assist
with and ensure reimbursement and insurance coverage. Medical and radiation
oncologists also order diagnostic procedures such as ProstaScint for advanced
prostate cancer patients, and our promotional efforts are addressing this
segment of the medical community directly.

ONCOSCINT CR/OV. OncoScint CR/OV was approved by the FDA in the U.S. in
December 1992. OncoScint CR/OV was initially approved for single use with other
appropriate, commercially available diagnostic tests, to locate malignancies
outside the liver in patients with known colorectal or ovarian cancer. In
November 1995, FDA approved an expanded indication allowing for repeat
administration of OncoScint CR/OV. OncoScint CR/OV is also approved for sale in
eleven European countries and Canada. To date, OncoScint has not realized
substantial sales. We believe this product is effective in imaging both primary
and metastatic colorectal and ovarian tumors. However, this information has not
yet been widely used by physicians for patients with these conditions. We are
currently funding an investigator-initiated study designed to demonstrate the
benefits of performing an OncoScint study as soon as an initial diagnosis of
ovarian cancer is made, to determine which patients would benefit by a more
aggressive initial treatment of their disease. We believe a more aggressive
treatment at an earlier date could provide the potential for improved prognoses
for the patients following diagnosis of their malignancy.

Promotion of OncoScint CR/OV involves several different physician
audiences, including those who prescribe imaging procedures for their patients
as well as those who acquire and interpret the images. Referring physicians are
most likely to be surgeons and oncologists. OncoScint CR/OV, like ProstaScint,
is technique dependent, requiring training and expertise in reviewing and
interpreting images. Acceptance by the medical community of the benefits of
OncoScint CR/OV depends in part on the degree to which physicians acquire such
skills. Since May 1994, we have been the sole marketer of OncoScint CR/OV in the
U.S.

In 1995, we entered into a distribution agreement (the "Faulding
Agreement") with Faulding granting to Faulding the exclusive right to distribute
and sell OncoScint CR/OV in Canada. Faulding received regulatory approvals to
market the product in Canada in January 1998. The Faulding Agreement provides
for payments for minimum annual purchases of OncoScint CR/OV by Faulding, and
for certain royalties based upon net sales, if any, of OncoScint CR/OV by
Faulding. The initial term of the Faulding Agreement is seven years.

In 1996, we entered into a distribution agreement (the "CISbio Agreement")
with CIS biointernational, granting to CISbio the exclusive right to distribute
and sell OncoScint in all the countries of the world, except for the U.S. and
Canada. CISbio markets OncoScint CR/OV in various European countries. The CISbio
Agreement provides for minimum annual purchases of the components of OncoScint
CR/OV by CISbio, and for certain royalties based upon net sales of OncoScint
CR/OV by CISbio. The initial term of the CISbio Agreement is seven years
following the first commercial sale of the product by CISbio.

CANCER THERAPEUTIC PRODUCT

QUADRAMET. Quadramet, a proprietary cancer therapeutic agent, received
marketing approval from the FDA in March 1997 for the relief of pain in patients
with metastatic bone lesions that image on conventional bone scan, a routinely
performed nuclear medicine procedure. Quadramet consists of a radioactive
isotope, Samarium-153, which omits beta radiation, and chelating agent, EDTMP,
which targets the drug to sites of new bone formation.

According to American Cancer Society and National Cancer Institute
statistics, approximately 600,000 new cases of cancer that typically metastasize
to bone occurred in the U.S. in 1997. We believe that over 200,000 patients each
year will suffer from bone pain that is severe enough to require palliative
intervention.

Once tumors have metastasized to the skeleton, they continue to grow and
cause destruction of the adjacent bone. This erosion of bone stimulates new bone
formation, which encircles the metastatic tumor. The continued growth from the
expanding tumor causes pressure which the patient perceives as pain at the site
of the metastasis. By targeting these areas of bone formation, Quadramet
delivers site-specific radiation, which may result in significant pain
reduction. As such areas of tumor involvement expand, they weaken the bone and
eventually lead to fracture of the affected bone. The medical complications
associated with bone metastases may also include bone fractures, spinal cord
compression and paralysis.

Current competitive treatments for severe cancer bone pain include:

- Narcotic analgesics
These drugs work by masking the brain's ability to
perceive the pain induced by the tumors as they
expand and grow within the bone. While narcotic
analgesics can be effective in addressing
cancer-related bone pain, their prolonged and
escalating use can result in undesirable side
effects, including nausea and vomiting, sedation,
confusion and severe constipation.
- External beam radiation therapy
External beam radiation therapy, while usually
effective in relieving pain, is most appropriately
used to treat solitary lesions. In addition,
retreatment of painful areas is often not feasible
due to unacceptable toxicities to neighboring organs
and tissues. Treatments are generally administered in
five to ten or more sessions over two to three weeks
necessitating frequent visits by the patient and
contributing to the high cost of this procedure.
- Metastron(R), a radiopharmaceutical product of Nycomed Amersham plc
Metastron is the only other therapeutic
radiopharmaceutical approved by the FDA for the
treatment of cancer bone pain. It contains a
non-imageable radionuclide, Strontium-89. This
radionuclide decays with a very long radioactive
half-life (approximately 50 days), resulting in a
delayed onset of pain relief, generally several weeks
after administration. Further, the long half-life
causes a prolonged and variable degree of bone marrow
suppression. Prolonged bone marrow toxicity limits
the usage of other potential therapies such as
chemotherapy and radiation therapy, as well as the
ability to administer additional doses of this drug.
- Novantrone(R), a chemotherapeutic product of Immunex Corporation
("Immunex") Novantrone, a chemotherapeutic drug
frequently used in the management of acute
non-lymphocytic leukemia, is also marketed by
Immunex for use in combination with steroids for
pain related to hormone refractory prostate cancer.

The Company believes that Quadramet offers
significant advantages over Novantrone,
including lower toxicity, fewer side effects, and
more rapid onset of pain relief. However, Novantrone
is well known to oncologists because of its other
applications and this may provide some marketing
advantages to Immunex.

Quadramet has numerous characteristics which we believe are advantageous
for the treatment of cancer bone pain, including early onset of pain relief;
predictability of recovery from bone marrow toxicity; ease of administration;
and length of pain relief. Quadramet is administered as a single intravenous
injection on an outpatient basis and directly targets sites of new bone
formation which include those areas in the skeleton that have been invaded by
metastatic tumors. Quadramet exhibits high and very selective uptake in bone
with little or no detectable accumulation in soft tissue. The fraction of the
injected dose that is not taken up in the skeleton is excreted in an unmodified
form in the urine over a period of four to six hours. Further studies are
planned to evaluate the safety and efficacy of repeat dosing.

We intend to expand the use of Quadramet within the currently approved
indication and extend its use to new indications by performing additional
clinical trials and seeking regulatory approvals, primarily by and through our
marketing partner, Berlex. Clinical trials are either planned or currently
underway to evaluate the use of Quadramet in combination with other cancer
therapies (such as external beam radiation therapy), as a potential therapeutic
agent for treatment of cancer and as a therapy for children with malignancies
which have either arisen in bone or have spread to bone. Future trials are also
planned to evaluate the extension of the use of Quadramet to patients whose bone
metastases can be visualized on conventional bone scan, but who are not yet
experiencing pain from these metastases. Our continuation of these trials will
depend upon their progress, success and on the ability to obtain funding from
our existing or potential marketing partners.

The first non-cancer use of Quadramet under investigation is the treatment
of patients with refractory rheumatoid arthritis. These patients often
demonstrate enhanced uptake of radionuclide in affected joints on diagnostic
bone scans. In such cases, we believe Quadramet can target the diseased joints
and provide a high but localized dose of radiation to the area. Published
studies by foreign investigators have suggested benefits from Quadramet in the
relatively small number of rheumatoid arthritis patients studied. We are
currently conducting a Phase I dose escalation study of Quadramet to evaluate
the safety and preliminary efficacy of Quadramet in refractory rheumatoid
arthritis patients.

QUADRAMET MARKETING, SALES, MANUFACTURING AND DISTRIBUTION

We have licensed the rights to Quadramet from Dow. Quadramet was previously
marketed by DuPont, which arrangement was terminated during June 1998. In
October 1998, we entered into an exclusive agreement with Berlex for the
marketing of Quadramet. We anticipate that Berlex will re-launch Quadramet
during the first quarter of 1999. Berlex maintains a sales force which calls
upon the oncological community. Pursuant to our agreement with Berlex, we are
entitled to royalty payments based on net sales of the Quadramet product and
milestone payments based upon sales levels achieved.

Quadramet was originally launched in June 1997. During the first year of
launch, Quadramet was marketed principally to the nuclear medicine community,
which administers the treatment to patients. However, the treatment is more
typically prescribed by caregiving physicians, including medical oncologists and
urologists. We believe that successful commercialization of Quadramet will
depend upon marketing to these referring physicians.

DuPont, a leading supplier of radiopharmaceutical products in the U.S.,
will continue to manufacture the product for an initial term of five years.
Berlex has agreed to bear all costs of manufacture of Quadramet.

SALES, MARKETING AND DISTRIBUTION

We have limited sales, marketing and distribution capabilities. With
respect to the sales, marketing and distribution of Quadramet and the
co-promotion of ProstaScint, we are substantially dependent on the efforts of
Berlex and BARD. See "ProstaScint Marketing, Sales, Manufacturing and
Distribution" and "Quadramet Marketing, Sales, Manufacturing and Distribution."
If we are unable to successfully establish and maintain significant sales,
marketing and distribution efforts, either internally or through arrangements
with third parties, there would be a material adverse effect on our business,
financial condition and results of operations.

There can be no assurance that we be able to maintain our existing
collaborative arrangements or enter into collaborative and license arrangements
in the future on acceptable terms, if at all, that such arrangements will be
successful, that the parties with which the Company has or may establish
arrangements will perform their obligations under such arrangements, or that
potential collaborators will not compete with the Company by seeking alternative
means of developing products for the indications targeted by the Company.

PRODUCT CONTRIBUTION FOREIGN REVENUES/RISKS

The Company's currently marketed products and other sources of income
constitute a single business segment. No significant history of revenues exists
with respect to any of the Company's products. ProstaScint and Quadramet were
introduced to the market during the first half of 1997 and account for a
significant percentage of the Company's product and royalty revenues and total
revenues and are expected to do so for the foreseeable future. For the year
ended December 31, 1998, revenues related to ProstaScint and Quadramet accounted
for approximately 91% of the Company's product and royalty revenues. ProstaScint
sales have experienced continued growth since product launch. However, there can
be no assurance that such growth will continue indefinitely. Quadramet sales
during the period from its launch have not grown significantly. From the period
beginning in the second half of 1997, in which the product was launched in the
commercial marketplace, through June 1998, reported revenues related to
Quadramet sales were based on minimum royalty payments due from its original
commercial partner, DuPont. Actual sales were substantially less than the
minimum royalty payments received. Growth of Quadramet sales were initially slow
because of the need for hospitals to obtain license amendments under federal and
state law to receive and handle this new radioactive product. In addition,
marketing efforts by DuPont were directed primarily to nuclear medicine
physicians who directly administer the product to patients. While this sales
effort was necessary to generate product understanding, the Company believes
that marketing to oncologists and urologists, the primary care-givers for
patients who may benefit from Quadramet, is necessary for adequate penetration
into the market.

The marketing agreement with DuPont has been terminated and the Company the
Company has since entered into an exclusive license and marketing agreement for
the marketing of Quadramet with Berlex, which maintains an experienced sales
force calling on the oncology community. The Company and Berlex have entered
into an agreement with DuPont for the manufacture of Quadramet. Pursuant to this
agreement, Berlex bears the manufacturing costs for Quadramet. Marketing by
Berlex is planned to commence during the first quarter of 1999. There can be no

assurance that ProstaScint and Quadramet will achieve market acceptance on a
timely basis, or at all. The Company's success will be dependent upon the
acceptance of ProstaScint and Quadramet by the medical community, including
health care providers, such as hospitals and physicians, and third-party payors
(such as employers, insurers, and health maintenance organizations), as safe,
effective and cost efficient alternatives to other available treatment and
diagnostic protocols.

PRODUCT DEVELOPMENT

AXCELL BIOSCIENCES. AxCell, a wholly owned subsidiary of the Company
created in August 1996, utilizes an application of Genetic Diversity Library
("GDL") (described below) and other technology to support advances in
combinatorial chemistry, genomics and drug discovery. AxCell has developed an
integrated set of tools to map selective protein-protein interactions and is
using these tools to develop an Inter-Functional Proteomic Database
("IFP-dBase"). The IFP-dBase includes data relating to protein-protein
interaction linked to a variety of other relevant bioinformatic data. We believe
this informational database has potential value in the use by scientists in the
pharmaceutical industry as a means to help identify and validate important new
biological targets. Without the ability to sort and understand the interactions
between proteins, it will be difficult to identify the relatively few important
new targets among the more than 100,000 expected to be identified through
genomic analysis in the next few years. We believe such information will be of
value to pharmaceutical companies in conducting research on new drugs.
Discussions are currently underway with potential pharmaceutical customers who
might take immediate advantage of AxCell's ability to identify protein
interactions for targets which they are currently studying.

AxCell has developed a prototype bioinformatics interface for the
IFP-dBase. We expect that additional effort will be required to refine the
prototype. We will also pursue further research to identify protein-protein
interactions which would be useful in and necessary to a commercially viable
bioinformatics database. Funding is being sought from collaborators for the
AxCell program, from venture capital funds, or from other sources, including
corporate resources if adequate to provide such funding. No assurance can be
provided that the program will be developed, will be successful, or that we will
retain substantially all ownership or even a majority interest of AxCell.

GENETIC DIVERSITY LIBRARY TECHNOLOGY. Long-term research, much of which is
preliminary, had been conducted over a period of time by the Company on GDL
technology. The GDL program consists of research on long peptides that fold to
form three-dimensional structures. These peptides, which are biologically
produced, create vast, highly diverse compound libraries. We believe that the
ability of these compounds to bind to predetermined sites may mediate certain
therapeutic or diagnostic effects more effectively than other existing products.
Unlike conventional small molecule drugs or short peptides, long peptides can
act more like proteins and can fold to take on very precise biological functions
such as specific recognition units ("RUs"). Depending upon the application,
these RUs can act as receptors, as targeting agents, or ligands for biological
receptors. Certain peptides believed to have commercial potential have been
identified from the GDL program and may be subject to further development
efforts, although we would at present pursue such development only in connection
with a commercial partner. Otherwise, the basic research component of the GDL
program has been cancelled as part of our ongoing review of long term research
projects and focus on programs with nearer term economic potential. We are
actively pursuing corporate alliances and basic research and development
agreements to support and advance the GDL technology toward commercialization.

The Company has entered into a license agreement granting Elan worldwide
rights to a group of peptides and associated GDL technology for orally
administered drugs that are transported across the gastrointestinal epithelium,
as well as rights to other orally delivered drugs derived from the research
program. Elan is responsible for the further development and commercialization
of this technology. CYTOGEN is entitled to royalties from sales of any product
developed and commercialized based on this technology.

PSMA. In 1993, CYTOGEN and Memorial Sloan-Kettering Cancer Center ("MSKCC")
began a development program involving PSMA and CYTOGEN's prostate cancer
monoclonal antibody, CYT-351. PSMA is an unique antigen expressed in prostate
cancer cells and by the normal prostate epithelial cells. In July 1996, a patent
entitled "Prostate-Specific Membrane Antigen" was issued to Sloan-Kettering
Institute for Cancer Research, an affiliate of MSKCC. In November 1996, we
exercised our option for the exclusive license to this technology.

In December 1996, CYTOGEN exclusively licensed the use of PSMA in prostate
cancer vaccines for certain immunotherapeutic treatments of prostate cancer to
Prostagen, Inc. ("Prostagen"), a privately held company in New York. The
agreement with Prostagen provides for an up-front fee, several milestone
payments throughout the development of any potential products, and royalties
payable if and when products come to market. Products are currently under
development by third parties in collaboration with and under license from
Prostagen. Currently, a dendritic cell therapy using PSMA for treatment of
prostate cancer is in Phase II clinical studies.

In January 1997, we granted a non-exclusive option for the PSMA technology
to Boehringer Mannheim in the area of in vitro diagnostics, including reverse
transcriptase-polymerase chain reaction assays, a technique used to detect
circulating prostate cancer cells in the blood of patients. We have issued
licenses to various third parties for different uses of the PSMA technology in
diagnostic and therapeutic applications. These agreements provide the Company
with royalties payable if and when products come to market.

In 1996, Targon was granted exclusive rights to certain other fields of use
for the PSMA technology, including recent developments in the area of prodrugs
for prostate cancer. These rights were relinquished to Cytogen in connection
with the sale of our interest in Targon to Elan.

OTHER APPLICATIONS. While we have retained all rights for therapeutic and
in vivo diagnostic uses of the antibody utilized in ProstaScint for the Company
and its affiliates, we have licensed the antibody for in vitro diagnostic use to
the Pacific Northwest Research Foundation, which in turn, has established a
collaboration with Hybritech Incorporated ("Hybritech") to exploit this antibody
in a serum-based in vitro diagnostic test. We will receive royalties on product
sales by Hybritech, if any.

We believe that certain of our technologies under development may have
medical applications in various other areas, including autoimmune disorders and
infectious diseases. We intend to expand the research and development of these
technologies primarily through strategic alliances with other entities. We
cannot predict the establishment or the timing of such alliances. To the extent
funding is available, we expect to devote resources to these other areas. No
prediction can be made, however, as to when or whether the areas of research
described above will yield new scientific discoveries, or whether such research
will lead to new commercial products.

RESEARCH AND DEVELOPMENT

Our research and development expenditures include projects conducted by the
Company and payments made to customer sponsored research programs. Our expenses
for research and development activities (including customer sponsored programs)
were:

- 1998 -- $10.0 million
- 1997 -- $17.9 million
- 1996 -- $20.5 million

Research and development expenditures for customer sponsored programs
were:

- 1998-- $2.0 million
- 1997-- $1.5 million
- 1996 -- $1.1 million

We intend to pursue research and development activities having commercial
potential and to review all of our programs to determine whether possible market
opportunities, near and longer term, provide an adequate return to justify the
commitment of human and economic resources to their initiation or continuation.
Anticipated research and development spending for 1999 has been dramatically
curtailed.

HEALTH CARE REIMBURSEMENT

Our business, financial condition and results of operations will continue
to be affected by the efforts of governments and third-party payors to contain
or reduce the costs of healthcare through various means. There have been, and we
expect that there will continue to be, federal and state proposals to implement
government control of pricing and profitability of therapeutic and diagnostic
imaging agents. In addition, an increasing emphasis on managed care has and will
continue to increase the pressure on pricing of these products. While we cannot
predict whether such legislative or regulatory proposals will be adopted or the
effects such proposals or managed care efforts may have on our business, the
announcement of such proposals and the adoption of such proposals or efforts
could have a material adverse effect on our business, financial condition and
results of operations. Further, to the extent such proposals or efforts have a
material adverse effect on other companies that are prospective corporate
partners of the Company, our ability to establish strategic alliances may be
materially and adversely affected.

Sales of our products depend in part on the availability of reimbursement
to the consumer from third-party payors, including Medicare, Medicaid, and
private health insurance plans. Third-party payors are increasingly challenging
the prices charged for medical products and services. To the extent we succeed
in bringing products to market, there can be no assurance that these products
will be considered cost-effective and that reimbursement to consumers will be
available or will be sufficient to allow us to sell our products on a
competitive basis. Reimbursement by a third-party payor may depend on a number
of factors, including the payor's determination that our products are clinically
useful and cost-effective, medically necessary and not experimental or
investigational. Since reimbursement approval is required from each payor
individually, seeking such approvals can be a time consuming and costly process
which could require us to provide supporting scientific, clinical and
cost-effectiveness data for the use of our products to each payor separately. If
we are unable to secure adequate third party reimbursement for our products,
there would be material adverse effect on its business, financial condition and
results of operations.

COMPETITION

The biotechnology and pharmaceutical industries are subject to intense
competition, including competition from large pharmaceutical companies,
biotechnology companies and other companies, universities and research
institutions. Competition with the Company's existing therapeutic products is
posed by a wide variety of other firms, including firms which provide products
used in more traditional treatments or therapies, such as external beam
radiation, chemotherapy agents and narcotic analgesics. In addition, the
Company's existing and potential competitors may be able to develop technologies
that are as effective as, or more effective than those offered by the Company,
which would render the Company's products noncompetitive or obsolete. Moreover,
many of the Company's existing and potential competitors have substantially
greater financial, marketing, sales, manufacturing, distribution and
technological resources than the Company. Such existing and potential
competitors may be in the process of seeking FDA or foreign regulatory approval
for their respective products or may also enjoy substantial advantages over the
Company in terms of research and development expertise, experience in conducting
clinical trials, experience in regulatory matters, manufacturing efficiency,
name recognition, sales and marketing expertise and distribution channels. In
addition, many of these companies may have more experience in establishing
third-party reimbursement for their products. Accordingly, there can be no
assurance that the Company will be able to compete effectively against such
existing or potential competitors or that competition will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Cancer Diagnostic Imaging Products -- ProstaScint" and "Cancer
Therapeutic Products -- Quadramet".

CELLCOR

In 1995 we acquired Cellcor for the continued development of autologous
lymphocyte therapy in the treatment of metastatic renal cell cancer. As part of
our restructuring activities during 1998, we determined that Cellcor was no
longer in line with our strategic and financial objectives. In September 1998,
we terminated our Cellcor program and closed our facility.

MANUFACTURING

Our ProstaScint and OncoScint products are manufactured at a cGMP-compliant
manufacturing facility in Princeton which is now held by Bard BioPharma L.P., a
subsidiary of Purdue BioPharma ("Bard BioPharma"). We have access to the
facility for continued manufacture of these products under a three year
agreement. An Establishment License Application for the facility for the
manufacture of our products was approved by the FDA for the manufacture of
ProstaScint in October 1996 and for manufacture of OncoScint in December 1992.
It is expected that this facility will allow us to meet our projected production
requirements for ProstaScint and OncoScint for the foreseeable future, although
no assurances can be given to that effect.

In November 1997, the FD&C Act was amended to make the approval and review
process for biologics more similar to that for drugs. The new law requires only
one license to market a biological product, a BLA, eliminating the need for
separate license for the facility. Therefore, while we will continue to maintain
compliance with cGMPs, under the new law, we are not required to obtain separate
licenses of its commercial manufacturing facilities in the future. Moreover, we
will retain the status of having met the FDA's establishment licensing
requirements which we believes is an important competitive advantage in
attracting contract manufacturing business (discussed below).

Our products must be manufactured in compliance with regulatory
requirements and at commercially acceptable costs. While we believe that our
manufacturing arrangements currently address our needs, there can be no
assurance that we will be able to continue to arrange manufacture of such
products on a commercially reasonable basis, that we will be able to arrange
manufacture of additional products and product candidates or successfully
outsource such manufacturing needs. If we are unable to successfully manufacture
or arrange for the manufacture of our products and product candidates there
could be a material adverse effect on our business, financial condition and
results of operations.

The Company and its third party manufacturers are required to adhere to FDA
regulations setting forth requirements for cGMP and similar regulations in other
countries, which include extensive testing, control and documentation
requirements. Ongoing compliance with cGMP, labeling and other applicable
regulatory requirements is monitored through periodic inspections and market
surveillance by state and federal agencies, including the FDA, and by comparable
agencies in other countries. Failure of the Company and its third-party
manufacturers to comply with applicable regulations could result in sanctions
being imposed on the Company, including fines, injunctions, civil penalties,
failure of the government to grant premarket clearance or premarket approval of
drugs, delays, suspension or withdrawal of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions.

The annual production capacity of the Princeton facility, now held by Bard
BioPharma, was approximately 100,000 OncoScint or ProstaScint kits. The facility
was utilized approximately 15% in 1998, 15% in 1997, and 20% in 1996 for
manufacture of our products.

RAW MATERIALS AND SUPPLIERS

The active raw materials used for the manufacture of our products include
different antibodies. We have both exclusive and non-exclusive license
agreements which permit the use of specific monoclonal antibodies in our
products. Our first product, OncoScint CR/OV, uses the same monoclonal antibody
which has been supplied in clinical quantities and is being supplied in
commercial quantities by a single contract manufacturer, Lonza Biologics (which
acquired the Company's former supplier, Celltech, in 1996), through a shared
manufacturing agreement. We anticipate that Lonza Biologics will be able to meet
our needs for commercial quantities of monoclonal antibody.

We currently have arrangements necessary for production of projected
commercial quantities of monoclonal antibody for manufacture of ProstaScint
through an agreement with Bard BioPharma, which acquired the Company's
manufacturing facilities in January, 1999. CYTOGEN is responsible for the
production of both OncoScint and ProstaScint at the facility.

Quadramet is manufactured by DuPont pursuant to an agreement with Berlex
and CYTOGEN. Certain components of Quadramet, particularly Samarium-153 and
EDTMP, are provided to DuPont by sole source suppliers. Due to its radiochemical
properties, Samarium-153 must be produced on a weekly basis by its supplier in
order to meet DuPont's manufacturing requirements. On one occasion, DuPont was
unable to manufacture Quadramet on a timely basis due to the failure of the sole
source supplier to provide an adequate supply of Samarium-153. In the event that
DuPont is unable to obtain sufficient quantities of such components on
commercially reasonable terms, or in a timely manner, DuPont would be unable to
manufacture Quadramet on a timely and cost-competitive basis. In addition,
sources for certain of these components may not be readily available. Thus, the
loss by DuPont of its sources for such components could result in an
interruption of supply and could have a material adverse effect on the Company's
business, financial condition and results of operations.

PATENTS AND PROPRIETARY RIGHTS

Consistent with industry practice, we have a policy of using patent and
trade secret protection to preserve our right to exploit the results of our
research and development activities and, to the extent it may be necessary or
advisable, to exclude others from appropriating our proprietary technology.

Our policy is to protect aggressively our proprietary technology by
selectively seeking patent protection in a worldwide program. In addition to the
U.S., we file patent applications in Canada, major European countries, Japan and
additional foreign countries on a selective basis to protect inventions
important to the development of its business. We believe that the countries in
which we have obtained and are seeking patent coverage for our proprietary
technology represent the major focus of the pharmaceutical industry in which the
Company and certain of our licensees will market our respective products.

We hold 31 current U.S. patents and 66 current foreign patents. We have
filed and currently have pending a number of additional U.S. and foreign patent
applications, covering certain aspects of our technology for diagnostic and
therapeutic products, and the methods for their production and use. We intends
to file patent applications with respect to subsequent developments and
improvements when we believe such protection is in our the best interest.

We are the exclusive licensee of certain patents and patent applications
held by the University of North Carolina at Chapel Hill covering GDL technology.
We hold an exclusive license under certain patent and patent applications held
by the Memorial Sloan Kettering Institute covering PSMA. We are the exclusive
licensee of certain U.S. patents and applications held by Dow covering
Quadramet.

We may be entitled under certain circumstances to seek extension of the
terms of our patents. See "Government Regulation and Product Testing -- FDA
Approval".

We also rely upon, and intend to continue to rely upon, trade secrets,
unpatented proprietary know-how and continuing technological innovation to
develop and maintain our competitive position. We typically enter into
confidentiality agreements with our licensees and any scientific consultants,
and each of our employees have entered into agreements requiring that they
forbear from disclosing confidential information, and assign to us all rights in
any inventions made while in our employ. We believe that our valuable
proprietary information is protected to the fullest extent practicable; however,
there can be no assurance that:

- Any additional patents will be issued to the Company in any or all
appropriate jurisdictions;
- Litigation will not be commenced seeking to challenge the patent
protection or such challenges will not be successful;
- Our processes or products do not or will not infringe upon the patents
of third parties; or
- The scope of patents issued will successfully prevent third parties from
developing similar and competitive products.

It is not possible to predict how any patent litigation will affect the
Company's efforts to develop, manufacture or market its products.

The technology applicable to our products is developing rapidly. A
substantial number of patents have been issued to other biotechnology companies.
In addition, competitors have filed applications for, or have been issued,
patents and may obtain additional patents and proprietary rights relating to
products or processes that are competitive with ours. In addition, others may
have filed patent applications and may have been issued patents to products and
to technologies potentially useful to us or necessary to commercialize our

products or achieve our business goals. There can be no assurance that we will
be able to obtain licenses of such patents on acceptable terms. See
"Competition."

GOVERNMENT REGULATION AND PRODUCT TESTING

The development, manufacture and sale of medical products utilizing our
technology are governed by a variety of statutes and regulations in the U.S. and
by comparable laws and agency regulations in most foreign countries.

The FD&C Act requires that our products be manufactured in FDA registered
facilities subject to inspection. The manufacturer must be in compliance with
cGMP which imposes certain procedural and documentation requirements upon us and
our manufacturing partners with respect to manufacturing and quality control
activities. Noncompliance with cGMP can result in, among other things, fines,
injunctions, civil penalties, recalls or seizures of products, total or partial
suspension of production, failure of the government to grant premarket clearance
or premarket approval for drugs, withdrawal of marketing approvals and criminal
prosecution. Any failure by us or our manufacturing partners to comply with the
requirements of cGMP could have a material adverse effect on the Company's
business, financial condition and results of operations.

FDA APPROVAL. The major regulatory impact on the diagnostic and therapeutic
products in the U.S. derives from the FD&C Act and the Public Health Service
Act, and from FDA rules and regulations promulgated thereunder. These laws and
regulations require carefully controlled research and testing of products,
government notification, review and/or approval prior to marketing the products,
inspection and/or licensing of manufacturing and production facilities,
adherence to good manufacturing practices, compliance with product
specifications, labeling, and other applicable regulations.

The medical products which we apply our technology is subject to
substantial governmental regulation and may be classified as new drugs or
biologics under the FD&C Act. FDA and similar health authorities in most other
countries must approve or license the diagnostic and therapeutic products before
they can be commercially marketed. In order to obtain FDA approval, an applicant
must submit, as relevant for the particular product, proof of safety, purity,
potency and efficacy. In most cases such proof entails extensive pre-clinical,
clinical and laboratory studies. The studies and the preparation and prosecution
of those applications by FDA is expensive and time consuming, and may take
several years to complete. Difficulties or unanticipated costs may be
encountered by us or our licensees in their respective efforts to secure
necessary governmental approval or licenses, which could delay or preclude the
Company or its licensees from marketing their products. Limited indications for
use or other conditions could also be placed on any such approvals that could
restrict the commercial applications of such products. With respect to patented
products or technologies, delays imposed by the government approval process may
materially reduce the period during which we will have the exclusive right to
exploit them, because patent protection lasts only for a limited time, beginning
on the date the patent is first granted in the case of U.S. patent applications
filed prior to June 6, 1995, and when the patent application is first filed in
the case of patent applications filed in the U.S. after June 6, 1995, and
applications filed in the European Economic Community. We intend to seek to
maximize the useful life of our patents under the Patent Term Restoration Act of
1984 in the U.S. and under similar laws if available in other countries.

The majority of our diagnostic and therapeutic products will likely be
classified as new drugs or biologics and will be evaluated in a series of in
vitro, non-clinical and human clinical testing. Typically, clinical testing is
performed in three phases to further evaluate the safety and efficacy of the
drug. In Phase I, a product is tested in a small number of patients primarily
for safety at one or more dosages. In Phase II, in addition to safety, the

efficacy of the product against particular diseases is evaluated in a patient
population generally somewhat larger than Phase I. Clinical trials of certain
diagnostic and cancer therapeutic agents frequently combine Phase I and Phase II
into a single Phase I/II study. In Phase III, the product is evaluated in a
larger patient population sufficient to generate data to support a claim of
safety and efficacy within the meaning of the FD&C Act. Permission by the FDA
must be obtained before clinical testing can be initiated within the U.S. This
permission is obtained by submission of an IND application which typically
includes the results of in vitro and non-clinical testing and any previous human
testing done elsewhere. FDA has 30 days to review the information submitted and
makes a final decision whether to permit clinical testing with the drug or
biologic. A similar procedure applies to medical device and diagnostic products.

After completion of in vitro, non-clinical and clinical testing
authorization to market a drug or biologic must be granted by FDA. FDA grants
permission to market through the review and approval of either an NDA (New Drug
Application) for drugs or a BLA (Biologic License Application) for biologics.
These applications provide detailed information on the results of the safety and
efficacy of the drug conducted both in animals and humans. Additionally,
information is submitted describing the facilities and procedures for
manufacturing the drug or biologic.

The Prescription Drug User Fee Act and subsequently, the Food and Drug
Administration Modernization Act of 1997 have established application review
times for both NDAs and BLAs. For new drugs and biologics, FDA is to review and
make a recommendation for approval within 12 months. For drugs and biologics
designated as "priority," the review time is six months.

Once a drug or biologic is approved, we are required to maintain approval
status of the products by providing certain safety and efficacy information at
specified intervals. Additionally, the Company is required to meet other
requirements specified by the FD&C Act including but not limited to the
manufacture of products, labeling and promotional materials and the maintenance
of other records and reports. Failure to comply with these requirements or the
occurrence of unanticipated safety effects from the products during commercial
marketing, could lead to the need for product recall, or FDA initiated action,
which could delay further marketing until the products are brought into
compliance. Similar laws and regulations apply in most foreign countries where
these products are likely to be marketed.

ORPHAN DRUG ACT. The Orphan Drug Act is intended to provide incentives to
manufacturers to develop and market drugs for rare diseases or conditions
affecting fewer than 200,000 persons in the U.S. at the time of application for
orphan drug designation. A drug that receives orphan drug designation and is the
first product to receive FDA marketing approval for a particular indication is
entitled to orphan drug status, a seven-year exclusive marketing period in the
U.S. for that indication. Clinical testing requirements for orphan drugs are the
same as those for products that have not received orphan drug designation.
OncoScint CR/OV has received an orphan drug designation for the detection of
ovarian carcinoma. Under the Orphan Drug Act, the FDA cannot approve any
application by another party to market an identical product for treatment of an
identical indication unless (i) such party has a license from the holder of
orphan drug status, or (ii) the holder of orphan drug status is unable to assure
an adequate supply of the drug. However, a drug that is considered by FDA to be
different from a particular orphan drug is not barred from sale in the U.S.
during such seven-year exclusive marketing period even if it receives marketing
approval for the same product claim.

OTHER REGULATIONS. In addition to regulations enforced by FDA, the Company
is also subject to regulation under the state and local authorities and other
federal agencies including Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and Nuclear Regulatory Commission.

FOREIGN REGULATORY APPROVAL. The regulatory approval process in Europe has
changed over the past few years. There are two regulatory approval processes in
Europe for products developed by the Company. Beginning in 1995, the centralized
procedure became mandatory for all biotechnology products. Under this regulatory
scheme, the application is reviewed by two scientific project leaders referred
to as the rapporteur and co-rapporteur respectively. Their roles are to prepare
assessment reports of safety/efficacy and for recommending the approval for full
European Union marketing.

The second regulatory scheme, referred to as the Mutual Recognition
Procedure is a process whereby a product's national registration in one member
state within the European Union may be "mutually recognized" by other member
states within the European Union.

Substantial requirements, comparable in many respects to those imposed
under the FD&C Act, will have to be met before commercial sale is permissible in
most countries. There can be no assurance, however, as to whether or when
governmental approvals (other than those already obtained) will be obtained or
as to the terms or scope of those approvals.

CUSTOMERS

In 1998, the Company received 54% of its total product related, license and
contract revenues from three customers: Berlex, DuPont and Medi-Physics, a chain
of radiopharmacies (see Note 7 of Notes to the Consolidated Financial
Statements).

EMPLOYEES

As of January 22, 1999, we employed 95 persons full-time, of whom 7 were
engaged in research and development activities, 32 in operations and
manufacturing, 21 in clinical and regulatory activities, 17 in administration
and management, and 18 in marketing. We believe that we have been successful in
attracting skilled and experienced employees; however, competition for such
personnel is intense.

None of the Company's employees is covered by a collective bargaining
agreement. All of the Company's employees have executed confidentiality
agreements. We considers relation with our employees to be excellent.

IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS

========================
CAUTIONARY STATEMENT

Certain discussions set forth above regarding the development and
commercialization of our products and technologies are forward looking
statements that are subject to risks and uncertainties. The statements under
this caption are intended to serve as cautionary statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Certain statements in
this prospectus are forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors,
listed below or discussed elsewhere in this Form 10-K report, and in other of
the Company's filings with the Securities and Exchange Commission: (i) the

Company's ability to access the capital markets in the near term and in the
future for continued funding of existing projects and for the pursuit of new
projects; (ii) the ability to attract and retain personnel needed for business
operations and strategic plans; (iii) the timing and results of clinical
studies, and regulatory approvals; (iv) market acceptance of the Company's
products, including programs designed to facilitate use of the products, such as
the PIE Program; (v) demonstration over time of the efficacy and safety of the
Company's products; (vi) the degree of competition from existing or new
products; (vii) the decision by the majority of public and private insurance
carriers on whether to reimburse patients for the Company's products; (viii) the
profitability of its products; (ix) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations, and acquisition
candidates; (x) the ability of the Company and its partners to identify new
products as a result of those collaborations that are capable of achieving FDA
approval, that are cost-effective alternatives to existing products and that are
ultimately accepted by the key users of the product; (xi) the success of the
Company's marketing partners in obtaining marketing approvals in Canada and in
European countries, in achieving milestones and achieving sales of products
resulting in royalties; and (xii) the ability to protect and practice the
Company's intellectual property, including patents and know-how.

ITEM 2. PROPERTIES

We currently lease approximately 28,000 square feet of administrative and
manufacturing related space in two locations in Princeton, New Jersey,
including:

- 20,000 square feet of office space. The lease on this facility expires
in 2002; and
- 8,000 square feet of warehousing and additional manufacturing space.
The lease on this space expires in 1999.

In addition, we have the right to access space located in a facility in
Princeton (previously held by the Company) for manufacture of Company products
and for laboratory functions. We intend to remain in Princeton, New Jersey for
the foreseeable future. We own substantially all of the equipment used in the
laboratories and offices.

ITEM 3. LEGAL PROCEEDINGS

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company and their respective ages and
positions with the Company as of February 1, 1999 are as follows:

Name Age Title

James A. Grigsby 56 Director; Chairman of the Board

H. Joseph Reiser, Ph.D. 52 Director; President and Chief Executive
Officer

Donald F. Crane 48 Vice President, General Counsel and
Corporate Secretary

Jane M. Maida 43 Chief Accounting Officer, and Principal
Financial Officer

Graham S. May, M.D. 50 Vice President, Medical Affairs and
Business Development

John D. Rodwell, Ph.D. 52 Senior Vice President, Chief Scientific
Officer and President, AxCell
Biosciences

Michael A. Trapani 44 Vice President, Regulatory Affairs and
Quality Assurance

All executive officers are elected annually by the Board of Directors.
There is no family relationship among any of the executive officers or
directors.

BUSINESS EXPERIENCE

James A. Grigsby has been a director of the Company since May 1996 and
Chairman of the Board since June 1998. Since 1994, Mr. Grigsby has been
president of Cancer Care Management LLC, a consulting firm providing consulting
services regarding cancer disease management issues. From 1989 to 1994, Mr.
Grigsby was President of CIGNA Corporation's International Life and Employee
Benefits Division, which operated in over 20 countries worldwide, and prior to
that period also served as the head of CIGNA's national health care sales force.
Prior to that time, since 1978, he held a number of executive positions with
CIGNA Corporation. Mr. Grigsby received a B.A. degree in Mathematics from Baylor
University and is a Fellow of the Society of Actuaries.

H. Joseph Reiser, Ph.D. joined CYTOGEN in August 1998 as President and
Chief Executive Officer and as a member of the Board of Directors. Most
recently, Dr. Reiser was Corporate Vice President and General Manager,
Pharmaceuticals, for Berlex Laboratories Inc., the U.S. subsidiary of Schering
AG. During his 17 year tenure at Berlex, Dr. Reiser held positions of increasing

responsibility, serving as the first President of Schering Berlin's Venture
Corporation, Vice President, Technology and Industry Relations, and Vice
President, Drug Development and Technology. Dr. Reiser received his Ph.D. in
Physiology from Indiana University School of Medicine, where he also earned his
Master and Bachelor of Science degrees.

Donald F. Crane joined CYTOGEN in June 1997 as Vice President, General
Counsel and Corporate Secretary. Most recently, Mr. Crane was Senior SEC Counsel
for U.S. Surgical Corporation since 1993. Previously, Mr. Crane was Assistant
Secretary and Corporate Counsel at BellSouth Corporation in Atlanta, Georgia.
Mr. Crane holds a Bachelors degree in Communications from the University of
Georgia and a J.D. degree from the University of Georgia School of Law.

Jane M. Maida joined CYTOGEN in March 1997 as Chief Accounting Officer,
Corporate Controller and Assistant Secretary and currently serves as Principal
Financial Officer. Before joining CYTOGEN, Ms. Maida served as Chief Financial
and Information Officer for Mustard Seed, Inc., a behavioral health care
company, from 1995. Prior to that position, she was Chief Financial Officer of
Morphogenesis, Inc., a biotechnology company focused on cellular immunology.
From 1986 to 1994, Ms. Maida was Corporate Controller and Assistant Secretary
for The Liposome Company, Inc., a biotechnology company. Ms. Maida holds a B.S.
in Education from the University of Pennsylvania and a M.S. in Accounting from
the State University of New York at Albany. She is also a Certified Public
Accountant.

Graham S. May, M.D. joined CYTOGEN in January 1997 as Vice President,
Medical Affairs. In February 1998, he assumed additional responsibilities for
business development. Most recently, he was a Principal in the Global Health
Care Practice of Gemini Consulting Inc., an international management consultant
company, from 1995 to 1996. Prior to that, Dr. May was with Pharmacia, U.S., for
almost 10 years, first as Medical Director of the Hospital Products division,
and finally as Executive Medical Director of Kabi Pharmacia, Inc. Dr. May has
been a visiting scientist at the Clinical Trials Branch, National Heart, Lung,
and Blood Institute at the National Institutes of Health. He has also worked
with AKZO and Ciba-Geigy in Europe, as well as Hoechst-Roussel Pharmaceuticals
in the U.S. Dr. May holds undergraduate and medical degrees from Cambridge
University, England, and is a member of the Faculty of Pharmaceutical Medicine.

John D. Rodwell, Ph.D. joined CYTOGEN in September 1981. He served as
Director, Chemical Research, then as Vice President, Discovery Research from
1984 to 1989, and as Vice President, Research and Development from 1989 to July
1996, at which time he assumed his present responsibilities as Sr. Vice
President and Chief Scientific Officer. Dr. Rodwell has also served as President
and a director of AxCell since 1996. From 1980 to 1981, Dr. Rodwell was a
Research Assistant Professor and, from 1976 to 1980, he was a postdoctoral
fellow and Research Associate, both in the Department of Microbiology at the
University of Pennsylvania School of Medicine, where he currently is an Adjunct
Associate Professor in the Department of Microbiology. He holds a B.A. degree
from the University of Massachusetts, an M.S. degree in Organic Chemistry from
Lowell Technological Institute and a Ph.D. degree in Biochemistry from the
University of California at Los Angeles.

Michael A. Trapani joined CYTOGEN in January 1996 as Director, Regulatory
Affairs & Quality Assurance and held that position until his promotion in March
1998 to Vice President, Regulatory Affairs & Quality Assurance. In his current
position, he is responsible for regulatory and quality activities world-wide.
Mr. Trapani has approximately 20 years experience in the pharmaceutical industry
with the majority of his experience in the drug approval area. Most recently, he
was Senior Director, Regulatory Affairs for Pharmacia Adria in Columbus, OH.
Prior to that position, he held the position of Executive Director, Regulatory
Affairs at Kabi Pharmacia in Piscataway, N.J. Mr. Trapani started his career
with the FDA. Mr. Trapani holds a B.S. degree in Biology from Brooklyn College
and an MBA degree from Seton Hall Graduate School of Business.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

CYTOGEN Common Stock is traded on the NASDAQ National Market tier of The
NASDAQ Stock Market under the trading symbol "CYTO."

The table below sets forth the high and low sale prices for CYTOGEN
Common Stock for each of the calendar quarters indicated, as reported by the
NASDAQ National Market.

1997 High Low
- ---- ---- ---
First Quarter.......................................... 6 1/2 4 3/4
Second Quarter......................................... 6 5/16 4 11/16
Third Quarter.......................................... 5 1/16 3 5/8
Fourth Quarter......................................... 4 3/4 1 7/16

1998
- ----
First Quarter.......................................... 2 7/16 1 1/4
Second Quarter......................................... 2 5/8
Third Quarter.......................................... 2 9/16 3/4
Fourth Quarter......................................... 1 7/8 11/16

As of February 1, 1999 there were approximately 5,077 holders of record
of the Common Stock.

CYTOGEN has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. Declaration of dividends on the Common Stock will
depend, among other things, upon future earnings, the operating and financial
condition of the Company, its capital requirements, and general business
conditions.

For information concerning the issuance of the shares of CYTOGEN's
Series A and Series B Convertible Preferred Stock issued under Section 4(2) of
the Securities Act, see Note 11 of Notes to the Consolidated Financial
Statements.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information has been derived from the
consolidated financial statements of the Company for each of the five years in
the period ended December 31, 1998, which have been audited by Arthur Andersen
LLP, the Company's independent public accountants. The consolidated financial
summaries set forth below should be read in conjunction with the consolidated
financial statements, including the notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other information
provided elsewhere in this report.

YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
STATEMENTS OF OPERATIONS DATA: (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues:
Product sales .............................. $ 8,976 $ 5,252 $ 1,507 $ 1,377 $ 1,411
Royalties .................................. 1,664 3,282 -- -- --
License and contract ....................... 9,239 5,886 4,223 3,608 1,047
--------- --------- --------- --------- ---------
Total revenues ........................... 19,879 14,420 5,730 4,985 2,458
--------- --------- --------- --------- ---------
Operating Expenses:
Cost of product and contract
manufacturing revenues (1) ............... 12,284 5,939 -- -- --
Research and development .................... 9,967 17,913 20,539 22,594 20,321
Acquisition of in-process technology ........ -- -- -- 45,878 4,647
Equity loss in Targon subsidiary (2) ........ 1,020 9,232 288 -- --
Selling and marketing ....................... 5,103 5,492 4,143 4,493 5,536
General and administrative .................. 7,420 6,871 5,494 4,804 3,962
--------- --------- --------- --------- ---------
Total operating expenses ................. 35,794 45,447 30,464 77,769 34,466
--------- --------- --------- --------- ---------

Operating loss ........................... (15,915) (31,027) (24,734) (72,784) (32,008)

Gain on sale of Targon subsidiary ............. 2,833 -- -- -- --
Other income (expense) ........................ (70) 315 968 264 (798)
--------- --------- --------- --------- ---------
Net loss ...................................... (13,152) (30,712) (23,766) (72,520) (32,806)
Dividends, including deemed
dividends on preferred stock ............... (119) (1,352) (4,571) -- --
--------- --------- --------- --------- ---------
Net loss to common stockholders ............... $(13,271) $(32,064) $(28,337) $(72,520) $(32,806)
========= ========= ========= ========= =========

Basic and diluted net loss per common share ... $ (0.24) $ (0.63) $ (0.59) $ (2.11) $ (1.38)
========= ========= ========= ========= =========

Basic and diluted weighted average
common shares outstanding .................. 56,419 51,134 48,401 34,333 23,822
========= ========= ========= ========= =========

1998
--------------------
CONSOLIDATED BALANCE SHEET DATA: PRO FORMA(3) ACTUAL 1997 1996 1995 1994
- -------------------------------- ------------ ------ --------------------------------------------

Cash, short term investments and
restricted cash (2) .................. $ 10,522 $ 3,015 $ 7,401 $ 24,765 $ 29,135 $ 7,700
Total assets .............................. 15,620 10,900 27,555 41,543 37,149 19,690
Long-term liabilities ..................... 2,223 2,223 10,171 1,855 3,275 4,310
Redeemable common stock ................... -- -- -- -- -- 2,000
Stockholders' equity ...................... 5,740 443 9,983 32,927 25,276 4,368

(1) Prior to 1997, product sales were minimal and no revenues were derived from
contract manufacturing, therefore, cost of product sales was immaterial and
was included in research and development expenses.
(2) Restated in 1997 and 1996 to give retroactive effect to the change in
accounting for its investment in Targon. See Note 1 of Notes to the
Consolidated Financial Statements.
(3) Reflects the receipt of cash on the sale of common stock and sale of the
Company's laboratory and manufacturing facilities, both of which
occurred in January 1999. See Note 2 of Notes to the Consolidated
Financial Statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

From time to time, as used herein, the term "Company" may include CYTOGEN
Corporation ("CYTOGEN") and its subsidiaries AxCell Biosciences Corporation
("AxCell"), Cellcor Inc. ("Cellcor") and Targon Corporation ("Targon"), taken as
a whole, where appropriate. In 1998, the Company sold its interest in Targon and
closed the Cellcor subsidiary (see "Business of the Company").

RESULTS OF OPERATIONS

BACKGROUND. To date, the Company's revenues have resulted primarily from
(i) sales and royalties from ProstaScint, Quadramet and OncoScint CR/OV, (ii)
payments received from contract manufacturing and research services pursuant to
agreements, (iii) fees generated from the licensing of its technology and
marketing rights to its products, (iv) milestone payments received when events
stipulated in the collaborative agreements with third parties have been achieved
and (v) through September 1998, the cost recovery related to the treatment of
patients receiving autolymphocyte therapy ("ALT") for metastatic renal cell
carcinoma ("mRCC") under a Treatment Investigational New Drug program and
compassionate protocol which permits patients who do not qualify for or have
completed treatment under an ongoing study approved by the FDA to receive
treatment.

In October 1998, CYTOGEN entered into an exclusive license and marketing
agreement ("Berlex Agreement") with Berlex for the manufacture and sale of its
third FDA approved product, Quadramet, a treatment for bone pain arising from
cancers which have spread to the skeleton and that can be visualized on standard
bone scans. CYTOGEN and Berlex, in November 1998, jointly finalized a long-term
supply agreement with DuPont, the current contract manufacturer of Quadramet.
Under the terms of the Berlex Agreement, CYTOGEN received an $8 million up-front
payment of which $7.1 million was recorded as revenue with the balance recorded
as proceeds from the common stock warrant issued to Berlex. At the same time,
CYTOGEN charged to its cost of product and contract manufacturing revenues $4
million of expense payable to DuPont for securing a long-term manufacturing
commitment. Berlex will pay CYTOGEN royalties on net sales of Quadramet, as well
as milestone payments based on achievement of certain sales levels. Quadramet is
expected to be relaunched by Berlex in the first quarter of 1999. See Notes 4
and 5 of Notes to the Consolidated Financial Statements.

From June 1997 through June 1998, Quadramet was marketed in the United
States by DuPont. Under this arrangement, CYTOGEN recorded royalty revenues
based on contractual minimum royalty payments, which were greater than actual
sales. On June 3, 1998, pursuant to an agreement (the "Termination Agreement")
between CYTOGEN and DuPont, CYTOGEN reclaimed marketing rights to Quadramet and
the minimum royalty arrangement was terminated. All terms of the Termination
Agreement have been met. As a result, near-term royalty revenues were adversely
affected and Quadramet revenues were based on actual sales for the remainder of
1998.

In 1998, CYTOGEN implemented a restructuring plan which included operating
expense reductions through the closure of the Cellcor subsidiary and a corporate
downsizing. As a result, significant aspects of the Company's operations were
scaled back or eliminated to increase the Company's focus on marketing of its
products: Quadramet, ProstaScint and OncoScint CR/OV. In conjunction with this
restructuring plan, CYTOGEN recorded a charge of approximately $1.9 million in
1998 to its general and administrative expenses for severances, other closure
related expenses and costs to implement a corporate turnaround plan.

Also in 1998, CYTOGEN completed the sale of its remaining 49.875% interest
in Targon to Elan for $2.0 million As a result, the Company recognized a
non-operating gain of approximately $2.8 million in the third quarter of 1998.
All previous notes among CYTOGEN, Targon and Elan were canceled. In August 1998,
CYTOGEN received $2.0 million from Elan in exchange for a convertible promissory
note. See Notes 3 and 9 of Notes to the Consolidated Financial Statements.

In December 1998 and January 1999, the Company sold $4.5 million of common
stock to its two largest stockholders, a subsidiary of The Hillman Company and
The State of Wisconsin Investment Board. In January 1999, the Company exercised
a put right granted to the Company by an institutional investor to sell CYTOGEN
common stock for $500,000. See Note 10 of Notes to the Consolidated Financial
Statements.

Also, in January 1999, CYTOGEN sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P. ("Bard BioPharma") for $3.9 million. CYTOGEN also signed a three-year
agreement under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV
would continue to be manufactured at its former research and development
facility. Employees involved in manufacturing will remain CYTOGEN employees, but
Bard BioPharma will absorb their labor costs except for time spent on
manufacturing CYTOGEN products. The Company believes that the cost of products
will decrease under this new arrangement. As a result of the sale of facilities,
the Company will record a gain of approximately $3.3 million in the first
quarter of 1999.

REVENUES. Total revenues were $19.9 million in 1998, $14.4 million in 1997
and $5.7 million in 1996. Product related revenues, including product sales and
royalty revenues, accounted for 54%, 59% and 26% of revenues in 1998, 1997 and
1996, respectively. The growth in 1998 and 1997 was due to the launch and
revenues generated from ProstaScint and Quadramet. License and contract revenues
accounted for the remainder of revenues.

Product related revenues were $10.6 million, $8.5 million and $1.5 million
in 1998, 1997 and 1996, respectively. ProstaScint accounted for 60%, 48% and 4%
of the revenues in 1998, 1997 and 1996, respectively, while Quadramet royalties
and sales accounted for 31% and 38% of revenues in 1998 and 1997, respectively.
Sales from ProstaScint were $6.4 million, $4.1 million and $55,000 in 1998, 1997
and 1996, respectively while royalties and sales from Quadramet were $3.3
million for each year, 1998 and 1997. From the time of product launch in the
second quarter of 1997 through June 3, 1998, CYTOGEN recorded royalty revenues
for Quadramet based on minimum contractual payments, which were in excess of
actual sales. Subsequent to June 3, 1998, the minimum royalty arrangement was
discontinued and CYTOGEN recorded product revenues from Quadramet based on
actual sales. During the interim period until the re-launch of Quadramet by
Berlex in the first quarter of 1999, the Company does not expect Quadramet sales
to be significant. Although CYTOGEN believes that Berlex is an advantageous
marketing partner, there can be no assurance that Quadramet will, following the
re-launch of the product, achieve market acceptance on a timely basis or
sufficiently to result in significant revenues for CYTOGEN. With respect to
ProstaScint, no significant history of revenues exists, therefore the Company's
future product revenues will be also dependent upon the market place acceptance
of that product.

Other revenues, including sales from OncoScint CR/OV and ALT treatments,
were $923,000, $1.2 million and $1.5 million in 1998, 1997 and 1996,
respectively. Sales from OncoScint CR/OV were $872,000, $950,000 and $1.3
million in 1998, 1997 and 1996, respectively. Revenues from ALT treatments for
mRCC were $52,000 in 1998, $245,000 in 1997 and $178,000 in 1996. Due to the
discontinuance of the program in September 1998, the Company will receive no
additional revenues from ALT treatments.

License and contract revenues for 1998, 1997 and 1996 were $9.2 million,
$5.9 million and $4.2 million, respectively, and included up-front and milestone
payments, contract manufacturing and research revenues. License and contract
revenues have fluctuated in the past and may fluctuate in the future. Revenues
from up-front and milestone payments were $7.2 million, $2.1 million and
$845,000 in 1998, 1997 and 1996, respectively. In 1998, the payments consisted
primarily of $7.1 million up-front payment from Berlex for the marketing and
manufacturing rights of Quadramet. In 1997, CYTOGEN received a $2.0 million
milestone payment from DuPont upon FDA approval of Quadramet. In 1996, the
payments were derived primarily from C.R. Bard ("BARD") and CIS biointernational
("CISbio"), the Company's marketing partners.

Revenues from contract manufacturing and research revenues were $2.0
million, $3.8 million and $3.4 million in 1998, 1997 and 1996, respectively. The
1998 revenues included $1.7 million in contract manufacturing from eleven
customers. The Company is phasing out contract manufacturing services,
concurrent with the sale of the manufacturing facility, and expects to receive
no further revenues from this service after 1999. The 1997 revenues included
$1.5 million from DuPont for the continued clinical development of Quadramet
(see Note 5 of Notes to the Consolidated Financial Statements), $924,000 from
Elan for a combined research program between CYTOGEN and Elan to collaboratively
develop orally administered products (see Note 7 of Notes to the Consolidated
Financial Statements), and $984,000 from eleven contract manufacturing
customers. The 1996 revenues included $1.5 million from DuPont, $1.3 million
from Elan, and $405,000 from three customers for contract manufacturing
services.

OPERATING EXPENSES. Total operating expenses were $35.8 million in 1998,
$45.4 million in 1997 and $30.5 million in 1996. The 1998 decrease from 1997 was
due to the Company's continued efforts to control spending including the closure
of Cellcor subsidiary, corporate downsizing, and the termination of product
development efforts through Targon. The 1998 operating expenses included $1.4
million of restructuring costs associated with the closure of Cellcor subsidiary
and corporate downsizing, $539,000 in costs related to the implementation of the
Company's turnaround plan, $4.0 million for a Quadramet manufacturing commitment
and $995,000 for manufacturing and distribution of Quadramet. The 1997 operating
expenses included a one-time license fee of $7.5 million for the acquisition of
Morphelan and a milestone payment of $4.0 million to Dow upon FDA clearance of
Quadramet. The operating expenses in 1998 and 1997 were higher than 1996 due to
the one-time charges, cost of sales attributable to increased revenues, product
development efforts by Targon and AxCell, two new strategic business units
established during the second half of 1996, higher administrative costs and
increased selling and marketing efforts to promote ProstaScint and to establish
and maintain PIE Sites.

Costs of product and contract manufacturing revenues were $12.3 million and
$5.9 million in 1998 and 1997, respectively. The 1998 increase over the prior
year was due to a one-time charge of $4.0 million for a Quadramet manufacturing
commitment (see Note 5 of Notes to the Consolidated Financial Statements),
$995,000 for the manufacturing and distribution of Quadramet and increased
manufacturing costs associated with increased revenues. Prior to 1997, product
sales were minimal and no revenues were derived from contract manufacturing;
therefore, costs of products were immaterial and have been included in research
and development expenses.

Research and development expenses were $10.0 million in 1998, $17.9
million in 1997 and $20.5 million in 1996. These expenses principally reflect
product development efforts and support for various ongoing clinical trials. The
1998 decrease from 1997 was due to a $4.0 million milestone payment to Dow in
1997 for FDA clearance of Quadramet. The 1998 expenses were further reduced,
compared to 1997 and 1996, due to reductions in the Company's product
development efforts including the closure of Cellcor and termination of the
Genetic Diversified Library program. Pursuant to the Company's restructuring,
research and development expenses have been curtailed significantly.

Equity loss in Targon subsidiary were $1.0 million, $9.2 million and
$288,000 in 1998, 1997 and 1996, respectively. The Company did not recognize
Targon's losses after March 1998 based on the completion of the sale of Targon.
The 1997 expenses included a $7.5 million one-time product acquisition fee and
various product development and clinical support programs.

Selling and marketing expenses were $5.1 million in 1998, $5.5 million in
1997 and $4.1 million in 1996. The 1998 expenses reflected the marketing efforts
to increase ProstaScint sales and expenses to establish and maintain PIE Sites.
The 1997 increase over 1998 and 1996 is primarily attributable to expenses
associated with the launch of ProstaScint, including expenses to establish the
PIE Program.

General and administrative expenses were $7.4 million in 1998, $6.9
million in 1997 and $5.5 million in 1996. The increase over prior years is
attributable to $1.4 million of restructuring costs associated with the closure
of Cellcor and work force reduction, $539,000 of expenses related to the
implementation of a corporate turnaround plan and $408,000 of financing related
expenses.

GAIN ON SALE OF TARGON SUBSIDIARY was $2.8 million in 1998 as a result of
the sale of CYTOGEN's ownership interest in Targon to Elan (see Note 3 of Notes
to the Consolidated Financial Statements).

INTEREST INCOME/EXPENSE. Interest income for 1998, 1997 and 1996 was
$582,000, $606,000 and $1.4 million, respectively. The decrease from the prior
years is due to lower cash and short term investment balances during the year.
The decrease is partially offset by interest income realized beginning July 1997
from the $10.0 million note due to CYTOGEN from Targon, which was canceled as a
result of the sale of Targon to Elan (see Note 3 of Notes to the Consolidated
Financial Statements).

Interest expense was $652,000 in 1998, $291,000 in 1997 and $451,000 in
1996. In addition to the imputed interest on liabilities associated with
CYTOGEN's termination agreements with Knoll Pharmaceuticals Company ("Knoll")
and Chiron B.V. ("Chiron"), beginning in July 1997, the Company recorded
interest expense in connection to the $10.0 million note due to Elan which was
canceled as a result of the sale of Targon to Elan in August 1998.

NET LOSS. Net loss to common stockholders was $13.3 million, $32.1 million
and $28.3 million in 1998, 1997 and 1996, respectively. Net loss per common
share was $0.24, $0.63 and $0.59 in 1998, 1997 and 1996, respectively, based on
56.4 million, 51.1 million and 48.4 million average common shares outstanding in
each year, respectively. The 1997 net loss was increased by $1.4 million of
deemed and accrued dividends on the Series B Preferred Stock. The 1996 net loss
was increased by $4.6 million of deemed dividend on the Series A Preferred Stock
(see Note 11 of Notes to the Consolidated Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents were $3.0 million as of December
31, 1998, compared to $7.4 million as of December 31, 1997 and $24.8 million as
of December 31, 1996. Subsequent to December 31, 1998, the Company received $4.5
million from the sale of its common stock and $3.9 million from the sale of the
manufacturing and laboratory facilities. As a result, the pro forma cash and
cash equivalents were $10.5 million. The cash used for operating activities in
1998 was $8.2 million compared to $22.4 million in the same period of 1997. The
decrease in cash used for operating activities from 1997 was primarily due to
increased receipts from revenues generated by sales and royalties from Quadramet
and ProstaScint, lower research and development expenses associated with Cellcor
and Targon and the 1997 one-time payments including the $7.5 million license fee
for Morphelan by Targon and the $4.0 million milestone payment for Dow.

Historically, the Company's primary sources of cash have been proceeds
from the issuance and sale of its stock through public offerings and private
placements, product related revenues, revenues from contract manufacturing and
research services, fees paid under its license agreements and interest earned on
its cash and short term investments.

In August 1998, CYTOGEN received $4.0 million from Elan consisting of $2.0
million for the sale of CYTOGEN's remaining interest in Targon and $2.0 million
in exchange for a convertible promissory note. The note is convertible into
CYTOGEN common shares at $2.80 per share, subject to adjustments, and matures in
seven years. The note bears annual interest of 7%, compounded semi-annually;
however, such interest is not payable in cash but will be added to the principal
for the first 24 months; thereafter, interest is payable in cash (see Note 9 of
Notes to the Consolidated Financial Statements).

In October 1998, the Company entered into a $750,000 term loan agreement
with The CIT Group/Credit Finance Inc., using the Company's tangible assets as
collateral. The note was repaid in January 1999.

In October 1998, the Company entered into an agreement with Kingsbridge
Capital Ltd. ("Kingsbridge") for a $12 million common stock equity line.
Pursuant to the Equity Line Agreement, the Company, subject to the satisfaction
of certain conditions was granted the right to issue and sell to Kingsbridge,
and Kingsbridge would be obligated to purchase up to $12 million of CYTOGEN
common stock from time to time (collectively, the "Put Rights") over a two year
period at a purchase price per share equal to 85% of the average of lowest
trading prices of CYTOGEN common stock during five designated trading days as
determined under the Equity Line Agreement. The Company can exercise the Put
Rights every 20 trading days in the amounts ranging from $150,000 to $1 million,
subject to the satisfaction of minimum trading volumes and market price of
CYTOGEN common stock and registration of the shares of common stock under the
Securities Act of 1933, as amended. The Company is required to exercise the Put
Rights with respect to a minimum of $3 million over the life of the Equity Line
Agreement. In addition, the Company granted to Kingsbridge a warrant to purchase
up to 200,000 shares of CYTOGEN common stock at an exercise price of $1.016 per
share through April 2002. In January 1999, the Company exercised a Put Right for
the sale of 475,342 shares of common stock at an aggregate price of $500,000 or
$1.0519 per share.

In December 1998 and January 1999, CYTOGEN sold 6,000,000 shares directly
to the Company's two largest investors, a subsidiary of The Hillman Company and
The State of Wisconsin Investment Board at $0.75 per share for a total of $4.5
million. The shares were sold under a registration statement.

In January 1999, the Company sold its manufacturing and laboratory
facilities for $3.9 million. A portion of the proceeds of sale were used to
repay the outstanding principal balance of the $750,000 term loan agreement
entered with the CIT Group/Credit Finance, Inc., in October 1998.

Quadramet. In October 1998 CYTOGEN announced an exclusive license
agreement with Berlex for the manufacture and sale of Quadramet. Under the terms
of the Berlex Agreement, CYTOGEN received an $8 million up front payment.
CYTOGEN recorded a $4 million charge for securing a long-term manufacturing
commitment with DuPont, of which $3 million was paid in 1998 and $1 million will
be paid in March of 1999. Berlex will pay CYTOGEN royalties on net sales of
Quadramet, as well as milestone payments based on achievement of certain sales
levels (see Note 4 of Notes to the Consolidated Financial Statements). In
connection with the Berlex Agreement, CYTOGEN granted Berlex a warrant to
purchase 1,000,000 shares of CYTOGEN common stock at an exercise price of $1.002
per share through October 2003, which is exercisable after the earlier of one
year or the achievement of defined sales levels.

CYTOGEN acquired an exclusive license to Quadramet in the U.S., Canada,
Latin America, Europe and Japan from Dow. The agreement requires the Company to
pay Dow royalties based on a percentage of net sales of Quadramet, or guaranteed
contractual minimum payments, whichever is greater, and future payments upon
achievement of certain milestones. Minimum royalties due Dow are $500,000 in
1999, $750,000 in 2000 and 2001 and $1.0 million per year for the following 11
years. During 1998 and 1997 the Company recorded $500,000 and $375,000,
respectively, in royalty expenses for Quadramet.

ProstaScint. ProstaScint was launched in February 1997. Significant cash
will be required to support the Company's marketing program and expansion and
maintenance of the PIE program.

In 1996, CYTOGEN entered into an agreement with BARD (the "Co-Promotion
Agreement") to market and promote ProstaScint, pursuant to which BARD will make
payments upon the occurrence of certain milestones, which include expansion of
co-marketing rights in selected countries outside the U.S. During the term of
the Co-Promotion Agreement, BARD will receive performance-based compensation for
its services. In 1998 and 1997, the Company recorded $1 million and $586,000,
respectively, for BARD commissions.

OncoScint CR/OV. To date, sales of OncoScint CR/OV have not been material.
In 1994, the Company reacquired all U.S. marketing rights to OncoScint from
Knoll Pharmaceuticals Company ("Knoll") and in 1998 paid the balance of its
obligation to Knoll of $1.8 million.

The Company's capital and operating requirements may change depending upon
various factors, including: (i) the success of the Company and its strategic
partners in manufacturing, marketing and commercialization of its other
products; (ii) the amount of resources which the Company devotes to clinical
evaluations and the expansion of marketing and sales capabilities; (iii) results
of clinical trials and research and development activities; and (iv) competitive
and technological developments.

The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products, contract manufacturing,
license and research contracts, and control of spending. To achieve its
strategic objectives, the Company may enter into research and development
partnerships and acquire, in-license and develop other technologies, products or
services. Certain of these strategies may require payments by the Company in
either cash or stock in addition to the costs associated with developing and
marketing a product or technology. The Company currently has no commitments or
specific plans for acquisitions or strategic alliances. However, the Company
believes that, if successful, such strategies may increase long term revenues.
There can be no assurance as to the success of such strategies or that resulting
funds will be sufficient to meet cash requirements until product revenues are
sufficient to cover operating expenses. To fund these strategic and operating
activities, the Company may sell equity and debt securities as market conditions
permit or enter into credit facilities.

The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further expand
its marketing and sales. The Company expects that its existing capital resources
as of December 31, 1998, together with decreased operating costs, the $4.5
million received from the sale of common stock, and the $3.9 million received
from the sale of the manufacturing and laboratory facilities but exclusive of
the Equity Line Agreement, will be adequate to fund the Company's operations
into the year 2000. Management believes the addition of the Equity Line
Agreement, will provide the Company with additional cash flow to sustain
operations well into year 2000. No assurance can be given that the Company will

not consume a significant amount of its available resources before that time. In
addition, the Company expects that it will have additional requirements for debt
or equity capital, irrespective of whether and when it reaches profitability,
for further development of products, product and technology acquisition costs,
and working capital. The Company's future capital requirements and the adequacy
of available funds will depend on numerous factors, including the successful
commercialization of its products, the costs associated with the acquisition of
complementary products and technologies, progress in its product development
efforts, the magnitude and scope of such efforts, progress with clinical trials,
progress with regulatory affairs activities, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the expansion of strategic
alliances for the sales, marketing, manufacturing and distribution of its
products. To the extent that the currently available funds and revenues
including the Equity Line Agreement, the $4.5 million received from the sale of
common stock and the $3.9 million received from the sale of facilities are
insufficient to meet current or planned operating requirements, the Company will
be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. Based on the Company's historical ability to raise capital and current
market conditions, the Company believes other financing alternatives are
available. There can be no assurance that the financing commitments described
above or other financial alternatives will be available when needed or at terms
commercially acceptable to the Company. If adequate funds are not available, the
Company may be required to delay, further scale back or eliminate certain
aspects of its operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, products or potential
markets. If adequate funds are not available, the Company's business, financial
condition and results of operations will be materially and adversely affected.

YEAR 2000 COMPLIANCE

The "Year 2000 problem" describes the concern that certain computer
applications, which use two digits rather than four to represent dates, will
interpret the year 2000 as 1900 and malfunction on January 1, 2000.

CYTOGEN's Internal Systems. The efficient operation of the Company's
business is dependent in part on its computer software programs and operating
systems (collectively, Programs and Systems). These Programs and Systems are
used in several key areas of the Company's business, including clinical,
purchasing, inventory management, sales, shipping, and financial reporting, as
well as in various administrative functions. The Company has completed its
evaluation of the Program and Systems to identify any potential year 2000
compliance problem. Based on present information, the Company believes that it
will be able to achieve year 2000 compliance through a combination of
modifications or replacement of existing Programs and Systems. The majority of
the Company's internal systems have been replaced with fully compliant systems.
The remaining systems are expected to be compliant by April 30, 1999 at a cost
of $10,000. However, there can be no assurance that the required expenditures
will not exceed that amount.

Readiness of Third Parties. The Company is also working with its
processing banks, network providers and manufacturing partners to ensure their
systems are year 2000 compliant. All these costs will be borne by the
processors, network and software companies and manufacturing partners.
Currently, the Company's processing banks and manufacturing partners are in the
process of completing their year 2000 compliance programs. If the manufacturing

partners systems fail on January 1, 2000 the Company's revenues may be adversely
impacted. In the event that some or all of the processing banks are unable to be
year 2000 compliant, the Company will switch merchant accounts to those that are
compliant.

Risks Associated with the Year 2000. The Company is not aware, at this
time, of any Year 2000 non-compliance that will not be fixed by the Year 2000.
However, some risks that the Company faces include: the failure of internal
information systems, defects in its work environment, a slow down in its
customers' ability to make payments, and the availability of products for sale.

Contingency Plans. The Company is in the process of developing contingency
plans to address a worst case year 2000 scenario. This contingency plan is
expected to be completed by August 31, 1999.

Recently Enacted Accounting Pronouncements

There have been no recently enacted accounting pronouncements which the
Company believes would have an effect on the Company's financial position or
results of operations.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not have operations subject to risks of foreign currency
fluctuations, nor does it use derivative financial instruments in its operations
or investment portfolio. The Company does not have exposure to market risks
associated with changes in interest rates as it has no variable interest rate
debt outstanding. The Company does not believe it has any other material
exposure to market risks associated with interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to Item 8 is submitted as a separate section of this Form 10-K

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the Company's Directors is incorporated by reference
to the information contained under the captions "Nominees for Directors" and
"Section 16(a) Benefical Ownership Reporting Compliance" in the Company's Proxy
Statement. Information regarding the Company's Executive Officers is set forth
in Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the information contained under the caption
"Executive Compensation" in the Company's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the information contained under the caption
"Security Ownership of Management and Principal Stockholders" in the Company's
Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as a part of the Report:

(1) and (2)

The response to this portion of Item 14 is submitted as a separate section of
this Form 10-K.

(3) Exhibits --

Exhibit No.
-----------
1.1 - Rights Agreement, dated as of June 19,
1998, between CYTOGEN Corporation and Chase Mellon
Shareholder Services, L.L.C., as Rights Agent. The
Rights Agreement included the Form of Certificate
of Designations of Series C Junior Preferred Stock
as Exhibit A, the form of Rights Certificate as
Exhibit B and the Summary of Rights as Exhibit C.
Filed as an exhibit to Form 8-K dated June 17, 1998
(Commission File No. 333-020015) and incorporated
herein by reference.

1.2 - Amended and Restated Rights Agreement,
dated as of October 19, 1998 between CYTOGEN
Corporation and Chase Mellon Shareholder Services,
L.L.C., as Rights Agent. The Amended and Restated
Rights Agreement includes the Form of Certificate
of Designations of Series C Junior Preferred Stock
as Exhibit A, the form of Rights Certificate as
Exhibit B and the Summary of Rights as Exhibit C.
Filed as an exhibit to Form 10-Q Quarterly Report
for the quarter ended September 30, 1998
(Commission File No. 333-02015) and incorporated
herein by reference.

3.1 - Restated Certificate of Incorporation of
CYTOGEN Corporation, as amended. Filed as an
exhibit to Form 10-Q Quarterly Report for the
quarter ended June 30, 1996 (Commission File No.
0-14879) and incorporated herein by reference.

4.1 - Specimen of Common Stock Certificate. Filed
as an exhibit to Amendment No. 1 to Form S-1
Registration Statement (No. 33-5533) and
incorporated herein by reference.

10.1 - Form of Registration Rights Agreement for
Common Stock between CYTOGEN Corporation and
certain persons listed on Schedule A thereto. Filed
as an exhibit to Form S-4 Registration Statement
(No. 33-62617) and incorporated herein by
reference.

10.2.1 - Lease Agreement, dated as of March 16,
1987, by and between Peregrine Investment Partners
I, as lessor, and CYTOGEN Corporation, as lessee.
Filed as an exhibit to Form 10-K Annual Report for
Year Ended January 2, 1988 (Commission File No.
0-14879) and incorporated herein by reference.

10.2.2 - Amendment, dated as of October 16, 1987, to Lease
Agreement between Peregrine Investment Partners I
and CYTOGEN Corporation. Filed as an exhibit to
Form S-8 Registration Statement (No. 33-30595) and
incorporated herein by reference.

10.3 - 1989 Employee Stock Option Plan.
Filed as an exhibit to Form S-8 Registration
Statement (No. 33-30595) and incorporated
herein by reference.#

10.4.1 - 1988 Stock Option Plan for Non-Employee Directors.
Filed as an exhibit to Form S-8 Registration
Statement (No. 33-30595) and incorporated herein by
reference.#

10.4.2 - Amendment to the CYTOGEN Corporation 1988
Stock Option Plan for Non-Employee Directors dated
May 22, 1996. Filed as an exhibit to Form 10-Q
Quarterly Report for the quarter ended June 30,
1996 (Commission File No. 0-14879) and incorporated
herein by reference.#

10.5 - Standard Form of Indemnification Agreement entered
into between CYTOGEN Corporation and its officers,
directors, and consultants. Filed as an exhibit to
Amendment No. 1 to Form S-1 Registration Statement
(No.33-31280)and incorporated herein by reference.#

10.6 - 1989 Stock Option Policy for Outside
Consultants. Filed as an exhibit to Amendment No.
1 to Form S-1 Registration Statement (No. 33-31280)
and incorporated herein by reference.#

10.7.1 - License Agreement dated as of March 31,
1993 between CYTOGEN Corporation and The Dow
Chemical Company. Filed as an exhibit to Form
10-Q/A-1 Amendment to Quarterly Report for the
quarter ended July 3, 1993 (Commission File No.
0-14879) and incorporated herein by reference.*

10.7.2 - Amendment of the License Agreement between
CYTOGEN Corporation and The Dow Chemical Company
dated September 5, 1995. Filed as an exhibit to
Form 10-Q Quarterly Report for the quarter ended
March 31, 1996 (Commission File No. 0-14879) and
incorporated herein by reference.*

10.7.3 - Second Amendment to the License Agreement
between CYTOGEN Corporation and The Dow Chemical
Company dated May 20, 1996. Filed as an exhibit to
Form 10-Q/A-1 Amendment to Quarterly Report for the
quarter ended June 30, 1996 (Commission File No.
0-14879) and incorporated herein by reference.*

10.8 - 1992 CYTOGEN Corporation Employee Stock
Option Plan II, as amended. Filed as an exhibit to
Form S-4 Registration Statement (No. 33-88612) and
incorporated herein by reference.#

10.9 - License Agreement, dated March 10, 1993,
between CYTOGEN Corporation and The University of
North Carolina at Chapel Hill, as amended. Filed as
an exhibit to Form 10-K Annual Report for the year
ended December 31, 1994 (Commission File No.
0-14879) and incorporated herein by reference.*

10.10 - Option and License Agreement, dated July 1,
1993, between CYTOGEN Corporation and
Sloan-Kettering Institute for Cancer Research.
Filed as an exhibit to Form 10-K Annual Report for
the year ended December 31, 1994 (Commission File
No. 0-14879) and incorporated herein by reference.*

10.11.1 - CYTOGEN Corporation 1995 Stock Option
Plan. Filed as an exhibit to Form 10-K Annual
Report for the year ended December 31, 1995
(Commission File No.
0-14879) and incorporated herein by reference.

10.11.2 - Amendment No. 1 to the CYTOGEN
Corporation 1995 Stock Option Plan dated May 22,
1996. Filed as an exhibit to Form 10-Q Quarterly
Report for the quarter ended June 30, 1996
(Commission File No. 0-14879) and incorporated
herein by reference.#

10.12 - Horosziewicz - CYTOGEN Agreement, dated
April 20, 1989, between CYTOGEN Corporation and
Julius S. Horosziewicz, M.D., DMSe. Filed as an
exhibit to Form 10-K Annual Report for the year
ended December 31, 1995 (Commission File No.
0-14879) and incorporated herein by reference.*

10.13 - Marketing and Co-Promotion Agreement between
CYTOGEN Corporation and C.R. Bard, Inc. effective
August 1, 1996. Filed as an exhibit to Form 10-Q
Quarterly Report for the quarter ended September
30, 1996 (Commission File No. 0-14879) and
incorporated herein by reference.*

10.14 - Severance Agreement effective as of March
26, 1996 between CYTOGEN Corporation and John D.
Rodwell, Ph.D. Files as an exhibit to Form 10-K
Annual Report for the year ended December 31, 1996
(Commission File No. 0-14879) and incorporated
herein by reference.#

10.15 - CYTOGEN Corporation Employee Stock Purchase Plan.
Filed as an exhibit to Form S-8 Registration
Statement (No. 333-27673) and incorporated herein
by reference.#

10.16 - License Agreement between Targon
Corporation and Elan Corporation, plc dated July
21, 1997. Filed as an exhibit to Form 10Q Quarterly
Report for the quarter ended June 30, 1997
(Commission File No. 0-14879) and incorporated
herein by reference.*

10.17 - Employment Agreement effective as of
December 23, 1996 between CYTOGEN Corporation and
Dr. Graham S. May. Filed as an exhibit to Form
10-K/A-1 Amendment to Annual Report for the Year
Ended December 31, 1997 (Commission File No.
333-02015) and incorporated herein by reference.#

10.18 - Convertible Promissory Note dated as of
August 12, 1998 between CYTOGEN Corporation and
Elan International Services, Ltd. Filed as an
exhibit to Form 10-Q Quarterly Report for the
quarter ended June 30, 1998 (Commission File No.
333-02015) and incorporated herein by reference.

10.19 - Employment agreement effective as of August 20,
1998 between CYTOGEN Corporation and H. Joseph
Reiser. Filed as an exhibit to Form 10-Q Quarterly
Report for the quarter ended September 30, 1998
(Commission File No. 333-02015) and incorporated
herein by reference.#

10.20 - Private Equity Line Agreement by and
between Kingsbridge Capital Limited and CYTOGEN
Corporation dated as of October 23, 1998. Filed as
an exhibit to Form 10-Q Quarterly Report for the
quarter ended September 30, 1998 (Commission File
No. 333-02015)and incorporated herein by reference.

10.21 - License Agreement by and between Berlex
Laboratories, Inc. and CYTOGEN Corporation dated as
of October 28, 1998. Filed as an exhibit to Form
10-Q/A-1 Amendment to Quarterly Report for the
quarter ended September 30, 1998 (Commission File
No. 333-02015)and incorporated herein by reference.

10.22 - Manufacturing Space Agreement between Bard
BioPharma L.P. and CYTOGEN Corporation dated as of
January 7, 1999. Filed as an exhibit to Form
S-1/A-1 Amendment to Registration Statement
(Commission File No. 333-67947)and incorporated
herein by reference.

10.23 - Employment Agreement effective as of
June 10, 1997 between CYTOGEN Corporation and
Donald F. Crane, Jr. Filed herewith.#

21 - Subsidiaries of CYTOGEN Corporation.

23 - Consent of Arthur Andersen LLP.

27 - Financial Data Schedule (submitted to SEC only in
electronic format).

# Management contract or compensatory plan or arrangement.

* CYTOGEN Corporation has received confidential treatment of certain
provisions contained in this exhibit pursuant to an order issued by the
Securities and Exchange Commission. The copy filed as an exhibit omits the
information subject to the confidentiality grant.

(b) Reports on Form 8-K:

None.

The Exhibits filed with this Form 10-K are listed above in response
to Item 14(a)(3).

(d) Financial Statement Schedules:

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 19th day of
February 1999.

CYTOGEN CORPORATION

By: /s/ H. Joseph Reiser
---------------------
H. Joseph Reiser
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ H. Joseph Reiser Chief Executive Officer and President February 19, 1999
------------------------------- (Principal Executive Officer), and
H. Joseph Reiser Director

/s/ Jane M. Maida Chief Accounting Officer (Principal February 19, 1999
------------------------------- Accounting Officer)
Jane M. Maida

/s/ John E. Bagalay, Jr. Director February 19, 1999
------------------------------
John E. Bagalay, Jr.

/s/ Ronald J. Brenner Director February 19, 1999
------------------------------
Ronald J. Brenner

Stephen K. Carter Director February 19, 1999
-------------------------------
Stephen K. Carter

/s/ James A. Grigsby Director and Chairman of the Board February 19, 1999
------------------------------
James A. Grigsby

/s/ Robert F. Hendrickson Director February 19, 1999
---------------------------
Robert F. Hendrickson

Annual Report on Form 10-K

Year Ended December 31, 1998

Item 8, Item 14(a)(1) and (2) and Item 14(d)

CYTOGEN CORPORATION

Princeton, New Jersey

Form 10-K Item 14(a)(1) and (2) and Item 14(d)

CYTOGEN CORPORATION AND SUBSIDIARIES

(1) Consolidated Financial Statements
---------------------------------

The following consolidated financial statements of CYTOGEN Corporation
and Subsidiaries together with the related notes and report of Arthur Andersen
LLP, independent public accountants, are included in Item 8:

Page in
Form 10-K
---------

Report of Independent Public Accountants...................................................... 42

Consolidated Balance Sheets as of December 31, 1998 and 1997 ................................. 43

Consolidated Statements of Operations--Years Ended December 31, 1998, 1997
and 1996................................................................................. 44

Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1998,
1997 and 1996............................................................................ 45

Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997
and 1996................................................................................. 46

Notes to Consolidated Financial Statements.................................................... 47

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To CYTOGEN CORPORATION:

We have audited the accompanying consolidated balance sheets of CYTOGEN
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CYTOGEN Corporation and
Subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, PA
January 29, 1999

CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31, 1998
-----------------------
PRO FORMA DECEMBER 31,
ACTUAL (NOTE 2) 1997
---------- ----------- -------------
ASSETS: (Unaudited)
Current Assets:

Cash and cash equivalents .............................................. $ 3,015 $ 10,522 $ 7,401
Receivable on common stock sold ........................................ 2,500 -- --
Accounts receivable, net ............................................... 1,362 1,362 4,064
Inventories ............................................................ 250 250 443
Other current assets ................................................... 330 330 258
---------- ---------- ----------

Total current assets ............................................... 7,457 12,464 12,166

Property and Equipment, net ................................................. 2,625 2,338 3,912
Investment in Targon Subsidiary ............................................. -- -- 10,343
Other Assets ................................................................ 818 818 1,134
---------- ---------- ----------

$ 10,900 $ 15,620 $ 27,555
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities ............................... $ 848 $ 121 $ 1,739
Accounts payable and accrued liabilities ............................... 7,386 7,536 5,662
---------- ---------- ----------

Total current liabilities .......................................... 8,234 7,657 7,401
---------- ---------- ----------

Long-Term Liabilities ....................................................... 2,223 2,223 10,171
---------- ---------- ----------

Commitments and Contingencies (Notes 6 and 16)

Stockholders' Equity:
Preferred stock, $.01 par value, 5,400,000 shares authorized-
Series A Convertible and Exchangeable Preferred Stock, $.01 par
value, 1,000 shares authorized, zero and 1,000 shares issued and
outstanding in 1998 and 1997, respectively ....................... -- -- --
Series B Convertible Preferred Stock, $.01 par value, 750 shares
authorized, zero and 750 shares issued and outstanding in 1998
and 1997, respectively ........................................... -- -- --
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, none issued and outstanding ........... -- -- --
Common stock, $.01 par value, 89,600,000 shares authorized,
61,950,000, 64,616,000 and 51,170,000 shares issued and
outstanding in 1998, 1998 pro forma and 1997, respectively ....... 619 646 512
Additional paid-in capital ............................................. 301,836 303,809 298,212
Accumulated deficit .................................................... (302,012) (298,715) (288,741)
---------- ---------- ----------
Total stockholders' equity ......................................... 443 5,740 9,983
---------- ---------- ----------
$ 10,900 $ 15,620 $ 27,555
========== ========== ==========

The accompanying notes are an integral part of these statements.

CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
---------------------------------

1998 1997 1996
--------- --------- ---------

REVENUES:
Product related:
ProstaScint .............................................. $ 6,378 $ 4,057 $ 55
Quadramet ................................................ 1,675 -- --
Others ................................................... 923 1,195 1,452
--------- --------- ---------
Total product sales ............................. 8,976 5,252 1,507

Quadramet royalties ...................................... 1,664 3,282 --
--------- --------- ---------
Total product related ........................... 10,640 8,534 1,507

License and contract ............................................ 9,239 5,886 4,223
--------- --------- ---------

Total revenues ........................................... 19,879 14,420 5,730
--------- --------- ---------
OPERATING EXPENSES:
Cost of product and contract manufacturing revenues .......... 12,284 5,939 --
Research and development ..................................... 9,967 17,913 20,539
Equity loss in Targon subsidiary ............................. 1,020 9,232 288
Selling and marketing ........................................ 5,103 5,492 4,143
General and administrative ................................... 7,420 6,871 5,494
--------- --------- ---------

Total operating expenses ................................. 35,794 45,447 30,464
--------- --------- ---------

Operating loss ........................................... (15,915) (31,027) (24,734)

Gain on sale of Targon subsidiary ................................. 2,833 -- --
Interest income ................................................... 582 606 1,419
Interest expense .................................................. (652) (291) (451)
--------- --------- ---------

Net loss .......................................................... (13,152) (30,712) (23,766)
Dividends, including deemed dividends on preferred stock .......... (119) (1,352) (4,571)
--------- --------- ---------

Net loss to common stockholders ................................... $(13,271) $(32,064) $(28,337)
========= ========= =========

Basic and diluted net loss per common share ....................... $ (0.24) $ (0.63) $ (0.59)
========= ========= =========

Basic and diluted weighted average common shares outstanding ...... 56,419 51,134 48,401
========= ========= =========

The accompanying notes are an integral part of these statements.

CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

UNREALIZED
GAIN (LOSS)
ADDITIONAL ON ACCU- TOTAL
PREFERRED COMMON PAID-IN SHORT-TERM MULATED STOCKHOLDERS'
STOCK STOCK CAPITAL INVESTMENTS DEFICIT EQUITY
--------- -------- ---------- ----------- ---------- -------------

BALANCE, DECEMBER 31, 1995 $ -- $460 $253,122 $ 34 $(228,340) $ 25,276

Issued 1,000 shares of Series A
preferred stock ................................... -- -- 4,854 -- -- 4,854
Series A preferred stock conversion
discount deemed dividends ......................... -- -- 4,571 -- (4,571) --
Issued 5,029,402 shares of common
stock ............................................. -- 51 26,525 -- -- 26,576
Granted 10,000 shares of common
stock ............................................. -- -- 26 -- -- 26
Unrealized loss on investments ....................... -- -- -- (39) -- (39)
Net loss ............................................. -- -- -- -- (23,766) (23,766)
------- ---- -------- ------ ---------- ---------

BALANCE, DECEMBER 31, 1996 -- 511 289,098 (5) (256,677) 32,927

Issued 750 shares of Series B
preferred stock ................................... -- -- 7,45 -- -- 7,455
Issued 100,282 shares of common
stock ............................................. -- 1 335 -- -- 336
Series B preferred stock conversion
discount deemed dividends ......................... -- -- 1,324 -- (1,324) --
Accrued dividends on Series B
preferred stock ................................... -- -- -- -- (28) (28)
Unrealized gain on investments ....................... -- -- -- 5 -- 5
Net loss ............................................. -- -- -- -- (30,712) (30,712)
------- ---- -------- ------ ---------- ---------

BALANCE, DECEMBER 31, 1997 -- 512 298,212 -- (288,741) 9,983

Issued 3,403,011 shares of
common stock ...................................... -- 34 2,583 -- -- 2,617
Dividends on Series B preferred stock ................ -- -- -- -- (119) (119)
Issued 7,377,054 shares of common stock
upon conversion of Series B preferred stock
and accumulated dividends ........................ -- 73 55 -- -- 128
Issued warrant to purchase 1,000,000
shares of common stock ............................ -- -- 855 -- -- 855
Modification of existing warrants to purchase
260,000 shares of common stock ................... -- -- 131 -- -- 131
Net loss ............................................. -- -- -- -- (13,152) (13,152)
------- ---- -------- ------ ---------- ---------

BALANCE, DECEMBER 31, 1998 ........................... $ -- $619 $301,836 $ -- $(302,012) $ 443
======= ==== ======== ====== ========== =========

The accompanying notes are an integral part of these statements.

CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................... $(13,152) $(30,712) $(23,766)
--------- --------- ---------
Adjustments to reconcile net loss to cash used for operating activities:
Depreciation and amortization ........................................... 1,196 1,513 1,532
Write down of property and equipment .................................... 657 384 --
Imputed interest ........................................................ 81 261 451
Warrant, stock and stock option grants .................................. 163 45 70
Equity loss in Targon subsidiary ........................................ 1,020 9,232 288
Gain on sale of Targon subsidiary ....................................... (2,833) -- --
Changes in assets and liabilities:
Accounts receivable, net ............................................ 2,702 (3,625) (155)
Inventories ......................................................... 193 (185) 98
Other assets ........................................................ 4 (74) 205
Accounts payable and accrued liabilities ............................ 1,944 727 (1,517)
--------- --------- ---------

Total adjustments .......................................... 5,127 8,278 972
--------- --------- ---------

Net cash used for operating activities .............................. (8,025) (22,434) (22,794)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short-term investments ................................ -- 4,474 (3,307)
Decrease in restricted cash .................................................. -- -- 383
Purchases of property and equipment .......................................... (100) (621) (874)
Investment in Targon subsidiary .............................................. -- (10,000) (9,850)
Proceeds from sale of Targon subsidiary ...................................... 2,000 -- --
--------- --------- ---------

Net cash provided by (used in) investing activities .......................... 1,900 (6,147) (13,648)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable ...................................... 2,750 10,000 --
Payments of long-term debt ................................................... (1,898) (2,030) (2,243)
Proceeds from issuance of common stock ....................................... 51 261 26,576
Proceeds from issuance of series A preferred stock ........................... -- -- 4,854
Proceeds from issuance of series B preferred stock ........................... -- 7,455 --
Dividends on series B preferred stock ........................................ (19) -- --
Proceeds from issuance of warrants ........................................... 855 -- --
--------- --------- ---------
Net cash provided by financing activities ........................... 1,739 15,686 29,187
--------- --------- ---------

Net decrease in cash and cash equivalents .................................... (4,386) (12,895) (7,255)
Cash and cash equivalents, beginning of year ................................. 7,401 20,296 27,551
--------- --------- ---------
Cash and cash equivalents, end of year ....................................... $ 3,015 $ 7,401 $ 20,296
========= ========= =========

The accompanying notes are an integral part of these statements

CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS

CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of products
to improve diagnosis and treatment of cancer and other disease. In March 1997,
CYTOGEN received clearance from the U.S. Food and Drug Administration ("FDA") to
market Quadramet(R), CYTOGEN's product for the relief of pain due to cancers
that have spread to the skeleton and that can be visualized on a bone scan. In
October 1996, CYTOGEN received marketing approval from FDA for the
ProstaScint(R) imaging agent, CYTOGEN's prostate cancer diagnostic imaging
product. In December 1992, FDA approved OncoScint CR/OV(R) imaging agent,
CYTOGEN's colorectal and ovarian cancer specific diagnostic imaging product, for
single administration per patient. In November 1995, FDA approved an expanded
indication allowing for repeat administration of OncoScint CR/OV. All three
products are currently available in the marketplace. Operations of the Company
are subject to certain risks and uncertainties including, but not limited to,
access to capital, product market acceptance, product efficacy and clinical
trials, technological uncertainty, uncertainties of future profitability,
dependence on collaborative relationships and key personnel.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of CYTOGEN and
its wholly-owned subsidiaries, AxCell Biosciences Corporation ("AxCell") and
Cellcor Inc. ("Cellcor"). The financial statements also include the investment
results of Targon Corporation ("Targon"), which were accounted for on the equity
method (see Investment in Targon Subsidiary). Intercompany balances and
transactions have been eliminated in consolidation. In the third quarter of
1998, the Company sold Targon and closed Cellcor.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.

STATEMENT OF CASH FLOW

Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase. Cash paid for interest expense was $500,000, $524,000 and $307,000 in
1998, 1997 and 1996, respectively.

RECEIVABLES

At December 31, 1998, the Company had a $2.5 million receivable due from
The State of Wisconsin Investment Board relating to the sale of 3,333,334 shares
of CYTOGEN common stock at $0.75 per share. The Company received the proceeds
from the stock sale in January 1999 (see Note 2).

At December 31, 1998 and 1997, accounts receivable were net of an allowance
for doubtful accounts of $73,000 and $576,000, respectively. The Company charged
to expense $23,000 and $30,000 as a provision for doubtful accounts in 1998 and
1997, respectively. At December 31, 1998, approximately $91,000 of the Company's
accounts receivable balance was due from The DuPont Pharmaceutical Company
formerly the Radiopharmaceutical Division of The DuPont Merck Pharmaceutical
Company ("DuPont") compared to $3 million at December 31, 1997.

INVENTORY

The Company's inventory is primarily related to ProstaScint and OncoScint
CR/OV. Inventory is stated at the lower of cost or market using the first-in,
first-out method and consisted of the following:

December 31,
------------------------
1998 1997
--------- ---------
Raw materials . . . . . . . . . . . . . $ 57,000 $ 145,000
Work-in-process . . . . . . . . . . . . 143,000 158,000
Finished goods . . . . . . . . . . . . 50,000 140,000
--------- ---------
$ 250,000 $ 443,000
========= =========

PROPERTY AND EQUIPMENT

Equipment and furniture are stated at cost, net of depreciation and a
$102,000 reserve for idle equipment. Leasehold improvements are amortized on a
straight-line basis over the lease period or the estimated useful life,
whichever is shorter. Equipment and furniture are depreciated on a straight-line
basis over five years. Expenditures for repairs and maintenance are charged to
expense as incurred. For 1998, 1997 and 1996, repairs and maintenance expenses
were $242,000, $350,000 and $394,000, respectively. Property and equipment
consisted of the following:

December 31,
-------------------------------
1998 1997
------------- --------------

Leashold improvements............................... $ 9,438,000 $ 10,126,000
Equipment and furniture............................. 7,350,000 7,696,000
------------- --------------
16,788,000 17,822,000

Less - accumulated depreciation and amortization..... (14,163,000) (13,910,000)
------------- --------------
$ 2,625,000 $ 3,912,000
============= ==============

INVESTMENT IN TARGON SUBSIDIARY AND RECLASSIFICATION

As a result of the 1998 reduction of CYTOGEN's ownership interest in Targon,
the Company began accounting for its investment in Targon using the equity
method. In addition, the Company retroactively adopted Emerging Issues Task
Force ("EITF") 96-16. Under the equity method, the Company recognized 100% of
Targon's losses through March 31, 1998 in its consolidated statement of
operations as "Equity Loss in Targon Subsidiary," with a corresponding reduction
in the carrying amount of its investment. The Company did not recognize Targon's
losses after March 31, 1998 based on the completion of the sale of Targon (see
Note 3).

As a result of the adoption of EITF 96-16 and the equity method,
approximately $1.9 million and $376,000 of research and development expenses
recorded in 1997 and 1996, respectively, and $7.5 million of acquisition of
product rights expense recorded in 1997, were reclassified to "Equity Loss in
Targon Subsidiary". The primary effect on the December 31, 1997 balance sheet
was the reclassification of Restricted Cash to "Investment in Targon
Subsidiary". All other changes were immaterial.

In August 1998 the Company sold its remaining ownership interest in Targon
to Elan Corporation, plc ("Elan") for $2.0 million (see Note 3). As a result,
the Company recorded a gain of approximately $2.8 million in its 1998
consolidated statement of operations.

OTHER ASSETS

Other assets consist primarily of undeveloped land with a net book value of
$660,000, which is valued at the lower of cost or market. During 1998 and 1997,
the Company charged to expense $240,000 and $384,000, respectively to write down
the land to estimated market value.

REVENUE RECOGNITION

Product related revenues include product sales by CYTOGEN to its customers
and Quadramet royalties. Product sales are recognized upon shipment of the
finished goods. From the time of Quadramet's launch in the second quarter of
1997 to June 1998, CYTOGEN recorded Quadramet royalty revenues from DuPont based
on minimum contractual payments, which were in excess of actual Quadramet sales.
Pursuant to an agreement between CYTOGEN and DuPont, the minimum royalty
arrangement was discontinued and CYTOGEN reclaimed the marketing rights to
Quadramet. Subsequent to June 1998, CYTOGEN recorded product revenues from
Quadramet based on actual sales. Starting in 1999, Quadramet royalties will be
based on sales of Quadramet by Berlex Laboratories ("Berlex"), CYTOGEN's new
marketing partner for Quadramet (see Note 4).

License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, revenues from contract
manufacturing and research services, and revenues from other miscellaneous
sources. The Company's contract manufacturing services include filling, testing,
validation, and process development of monoclonal antibodies; process
development and clinical development of biopharmaceutical products; and the
preclinical manufacturing of an antibody product. The Company is phasing out
contract manufacturing services, concurrent with the sale of the manufacturing
and laboratory facilities (see Note 2) and expects to receive no further
revenues from this service after 1999. Revenues from milestone payments are

recognized when all parties concur that the events stipulated in the agreement
have been achieved. Revenues from cost-plus contracts are recognized when the
costs are incurred. Revenues from up-front payments are recognized when the
Company has no obligation to return the fee under any circumstances.

COST OF PRODUCT AND CONTRACT MANUFACTURING REVENUES

Beginning in 1997, the Company began providing contract manufacturing
services to third parties, and its second product ProstaScint was approved
resulting in significantly higher product sales. In 1998, the Company paid
DuPont $995,000 for manufacturing and distributing Quadramet as a result of
CYTOGEN's reacquiring the marketing rights of Quadramet in June 1998. In
addition, the Company recorded a $4 million charge for securing a long-term
manufacturing commitment for Quadramet from DuPont (see Note 5). Pursuant to the
marketing agreement with Berlex (see Note 4), beginning in 1999, there will be
no manufacturing and distribution costs related to Quadramet. Prior to 1997,
product sales were minimal and no revenues were derived from contract
manufacturing, therefore, cost of product sales was immaterial and included in
research and development expenses.

RESEARCH AND DEVELOPMENT

Research and development expenditures consist of projects conducted by the
Company and payments made to sponsored research programs and consultants. All
research and development costs are charged to expense as incurred. Research and
development expenditures for customer sponsored programs were $2.0 million, $1.5
million and $1.1 million in 1998, 1997 and 1996, respectively.

PATENT COSTS

Patent costs are charged to expense as incurred.

NET LOSS PER SHARE

Basic net loss per common share is based upon the weighted average common
shares outstanding during each year. Diluted net loss per common share is the
same as basic net loss per common share, as the inclusion of common stock
equivalents would be antidilutive.

2. UNAUDITED PRO FORMA BALANCE SHEET:

In January 1999, the Company sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P., for $3.9 million. CYTOGEN also signed a three-year agreement under which
two of CYTOGEN's products, ProstaScint and OncoScint CR/OV, would continue to be
manufactured by CYTOGEN at its former facility. The Company will recognize a
gain of approximately $3.3 million in its consolidated statement of operations
in the first quarter of 1999. In connection with the sale, the Company was
required to repay the remaining outstanding balance of the note due to CIT
Group/Credit Finance Inc. (see Note 9).

In addition, in January 1999, the Company sold 2,666,667 shares of CYTOGEN
common stock at $0.75 per share to a subsidiary of The Hillman Company for an
aggregate of $2.0 million and received $2.5 million in proceeds from the
December 1998 sale of CYTOGEN common stock to The State of Wisconsin Investment
Board (see Note 1).

The unaudited pro forma balance sheet reflects the above transactions as if
they had occurred on December 31, 1998.

3. SALE OF TARGON CORPORATION:

Targon was established in September 1996 pursuant to agreements between
CYTOGEN and Elan, and was a majority-owned (99.75%) subsidiary of CYTOGEN. In
March 1998, Elan exchanged its shares of the Company's Series A Convertible and
Exchangeable Preferred Stock ("Series A") for 50% of CYTOGEN's interest in
Targon. In August 1998, CYTOGEN sold its remaining 49.875% interest in Targon to
Elan for $2.0 million (see Note 1). As a result of the sale, a warrant to
purchase up to 1,000,000 shares of CYTOGEN common stock previously granted to
Elan and all notes among CYTOGEN, Elan and Targon were canceled. In addition, in
August 1998, CYTOGEN received $2.0 million from Elan in exchange for a
convertible promissory note (see Note 9). The Company recognized a gain of
approximately $2.8 million on the Targon transaction.

4. BERLEX LABORATORIES:

In October 1998, CYTOGEN entered into an exclusive license and marketing
agreement ("Berlex Agreement") with Berlex for the manufacture and sale of
Quadramet. Under the terms of the Berlex Agreement, CYTOGEN received a one-time
license fee of $8 million in 1998 and Berlex will pay CYTOGEN royalties on net
sales of Quadramet, as well as milestone payments based on achievement of
certain sales levels. Quadramet is expected to be re-launched by Berlex in the
first quarter of 1999.

In connection with the Berlex Agreement, CYTOGEN granted Berlex a warrant to
purchase 1,000,000 shares of CYTOGEN common stock at an exercise price of $1.002
per share through October 2003, which is exercisable after the earlier of
October 1999 or the achievement of defined sales levels. Using the Black Scholes
model, the estimated value of the warrant was calculated at $855,000, and was
recorded as a reduction of the one-time license fee revenue, with a
corresponding increase in stockholders' equity.

5. THE DUPONT PHARMACEUTICAL COMPANY:

Pursuant to the terms of an agreement between CYTOGEN and DuPont, CYTOGEN
received from DuPont (i) $1.5 million in each of 1997 and 1996 to fund clinical
programs to expand the use and marketing of Quadramet; (ii) a $2.0 million
milestone payment in 1997 upon the FDA clearance of Quadramet and (iii) royalty
revenues of $1.7 million and $3.3 million in 1998 and 1997, respectively, based
on minimum contractual payments which were in excess of actual sales. In June
1998, the agreement was amended and the minimum royalty arrangement was
discontinued. In 1998, CYTOGEN recorded a charge of $4 million as Cost of
Product and Contract Manufacturing Revenues for securing a long-term
manufacturing commitment for Quadramet from DuPont of which $3 million was paid
in 1998 and $1 million is payable in March 1999.

6. THE DOW CHEMICAL COMPANY:

In 1993, CYTOGEN acquired from The Dow Chemical Company ("DOW") an exclusive
license for the treatment of osteoblastic bone metastases in the U.S. for
Quadramet. This license was amended in 1995 and 1998 to expand the territory to
include Canada, Latin America, Europe and Japan, in 1996 to expand the field to
include all osteoblastic diseases and in 1998 to include rheumatoid arthritis.
In 1997, the Company recorded a $4.0 million milestone payment to Dow upon FDA
clearance of Quadramet. The agreement also requires the Company to pay Dow
royalties based on a percentage of net sales of Quadramet, or a guaranteed
contractual minimum payments, whichever is greater, and future payments upon
achievement of certain milestones. During 1998 and 1997, the Company recorded
$500,000 and $375,000, respectively in royalty expense.

Future annual minimum royalties due to Dow are as follows:

1999 500,000
2000 750,000
2001 750,000
2002 through 2012 1,000,000 per year

7. REVENUES FROM MAJOR CUSTOMERS:

Revenues from major customers as a percentage of total were as follows:

Year Ended December 31,
-----------------------------
Customer 1998 1997 1996
-------- ---- ---- ----
Berlex (see Note 4) 36% -% -%
DuPont (see Note 5) 8 47 27
Medi-Physics 10 9 10
Elan - 6 23

Medi-Physics is a chain of radiopharmacies which distributes ProstaScint and
OncoScint CR/OV kits.

Pursuant to an agreement between CYTOGEN and Elan in 1995, CYTOGEN performed
research services which resulted in contract revenues of $62,000, $924,000 and
$1.3 million in 1998, 1997 and 1996, respectively.

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

December 31,
-----------------------------
1998 1997
---------- ----------

Accounts payable $2,465,000 $1,160,000
Accrued payroll and related expenses 1,222,000 1,689,000
Severances and restructuring accruals 856,000 --
Accrued research contracts and materials 474,000 602,000
Accrued commission and royalties 828,000 647,000
Accrued professional and legal 655,000 835,000
Other accruals 886,000 729,000
---------- ----------
$7,386,000 $5,662,000
========== ==========

In connection with the closure of the Company's Cellcor subsidiary and
corporate downsizing in 1998, CYTOGEN incurred a restructuring charge of
approximately $1.9 million relating to severances, other closure related
expenses and costs to implement a corporate turnaround plan, of which $856,000
was still accrued at December 31, 1998.

9. LONG TERM LIABILITIES:

December 31,
-----------------------------
1998 1997
----------- ------------

Due to Knoll Pharmaceuticals $ -- $ 1,619,000
Due to Elan 2,054,000 10,000,000
Due to CIT Group/Credit Finance 744,000 --
Capital lease obligations 273,000 291,000
3,071,000 11,910,000
Less: Current portion (848,000) (1,739,000)
----------- ------------
$2,223,000 $10,171,000
=========== ============

In July 1997, the Company obtained a $10.0 million loan from Elan. The funds
were used by CYTOGEN to provide funding to Targon, including funding for the
$7.5 million license fee paid by Targon to Elan. As a result of the sale of
Targon to Elan in August 1998 (see Note 3), all notes among CYTOGEN, Elan and
Targon, were canceled.

In August 1998, CYTOGEN received $2.0 million from Elan in exchange for a
convertible promissory note. The note is convertible into shares of CYTOGEN
common stock at $2.80 per share, subject to adjustments, and matures in seven
years. The note bears annual interest of 7%, compounded semi-annually, however,
such interest is not payable in cash but will be added to the principal for the
first 24 months; thereafter, interest is payable in cash. In 1998, the Company
accrued $54,000 in interest expense on this note.

In October 1998, the Company entered into a $750,000 term loan agreement
with The CIT Group/Credit Finance Inc., using the Company's tangible assets as
collateral. The note bore interest at prime plus 3% and was payable monthly with
principal payments of $12,500 plus interest. In January 1999, the Company paid
the remaining balance of the loan with the proceeds from the sale of its
laboratory and manufacturing facilities (see Note 2).

The Company leases certain equipment under capital lease obligations which
will expire on various dates through 2002. Property and equipment leased under
non-cancelable capital leases have a net book value of $336,000 at December 31,
1998. Payments to be made under capital lease obligations (including interest of
$66,000) are as follows: $138,000 in 1999, $111,000 in 2000, $78,000 in 2001 and
$12,000 in 2002.

10. COMMON STOCK:

In October 1998, the Company entered into an agreement (the "Equity Line
Agreement") with an institutional investor (the "Investor") for a $12 million
common stock equity line. Pursuant to the Equity Line Agreement, the Company,
subject to the satisfaction of certain conditions, was granted the right to
issue and sell to the Investor, and the Investor would be obligated to purchase
up to $12 million of CYTOGEN common stock from time to time (collectively, the
"Put Rights") over a two year period at a purchase price per share equal to 85%
of the average of lowest trade prices of CYTOGEN common stock during five
designated trading days as determined under the Equity Line Agreement. The
Company can exercise the Put Rights every 20 trading days in the amounts ranging
from $150,000 to $1 million, subject to the satisfaction of minimum trading
volume, market price of CYTOGEN common stock and registration of the shares of
common stock under the Securities Act of 1933, as amended. The Company is
required to exercise Put Rights with respect to a minimum of $3 million over the
life of the Equity Line Agreement. In addition, the Company granted to the
Investor a warrant to purchase up to 200,000 shares of CYTOGEN common stock at
an exercise price of $1.016 per share through April 2002. In January 1999, the
Company exercised a Put Right for the sale of 475,342 shares of common stock at
an aggregate price of $500,000 or $1.0519 per share.

In December 1998, the Company sold to The State of Wisconsin Investment
Board 3,333,334 shares of CYTOGEN common stock at an aggregate price of $2.5
million or $0.75 per share.

In January 1999, the Company sold to a subsidiary of The Hillman Company
2,666,667 shares of CYTOGEN common stock at an aggregate price of $2.0 million
or $0.75 per share.

11. CONVERTIBLE PREFERRED STOCK:

In September 1996, CYTOGEN issued 1,000 shares of Series A in connection
with the formation of Targon. Since the Series A was immediately convertible
into common stock, the most beneficial conversion discount was recorded
analogous to a deemed dividend of $4.6 million in 1996. In March 1998, Elan
exchanged all of its shares of the Company's Series A for 50% of CYTOGEN's
interest in Targon (see Note 3).

In December 1997, CYTOGEN obtained a financing commitment from private
investors for the purchase of up to $20.0 million of its Convertible Preferred
Stock subject to satisfaction of certain conditions. CYTOGEN completed the first
tranche of the financing in December 1997 by issuing 750 shares of Series B
Preferred Stock ("Series B") for an aggregate price of $7.5 million. The Series
B carried a dividend rate of 6% which was payable in cash or common stock at the
option of CYTOGEN.

In connection with the conversion feature of the Series B, the Company
recorded a deemed dividend of $1.3 million in 1997, which represented the
maximum 15% conversion discount given to the holders of the Series B. In 1998,
all of the outstanding Series B was converted into 7,377,054 shares of CYTOGEN
common stock including $128,000 of accrued dividends.

12. STOCK OPTIONS AND GRANTS:

The Company has various stock option plans that provide for the issuance of
incentive and non-qualified stock options to employees, non-employee directors
and outside consultants, for which an aggregate of 6,233,357 shares of common
stock have been reserved. The persons to whom options may be granted and the
number, type, and terms of the options vary among the plans. Options are granted
with an exercise term of 10 years and generally become exercisable in
installments over periods of up to 5 years at an exercise price determined
either by the plan or equal to the fair market value of the common stock at the
date of grant. Under certain circumstances, vesting may accelerate. In January
1998, the Company cancelled unexercised stock option grants to purchase 671,555
shares ranging in price from $3.687 to $16.50 per share and issued stock option
grants to purchase 537,244 shares at $1.95 per share which equaled fair market
value at the date of grant. This repricing was not available to officers,
directors, executives and consultants of the Company. Activity under these plans
was as follows:

Number of Price Range
Shares Per Share
---------- --------------
Balance at December 31, 1995 2,952,857 $ 2.69 - 17.00

Granted 1,073,770 5.00 - 9.28
Exercised (254,907) 2.69 - 7.50
Cancelled (248,780) 2.69 - 7.50
-----------

Balance at December 31, 1996 3,522,940 $ 2.69 - 17.00

Granted 822,400 2.06 - 6.13
Excersised (60,350) 1.77 - 5.47
Cancelled (459,530) 2.69 - 8.88

Balance at December 31, 1997 3,825,460 $ 2.06 - 17.00
Granted 2,285,920 0.70 - 2.13
Cancelled (2,319,085) 1.36 - 17.00

Balance at December 31, 1998 3,792,295 $ 0.70 - 16.63
==========

At December 31, 1998, options to purchase 1,497,586 shares of common stock
were exercisable and 1,242,024 shares of common stock were available for
issuance under approved plans of additional options that may be granted under
the plans. All options under the Cellcor stock option plan, which was reserved
in connection with the Cellcor merger in 1995, were cancelled as a result of the
closure of Cellcor.

In August 1998, the Company granted to a key employee an option to purchase
2,250,000 shares of CYTOGEN common stock at an exercise price of $1.0937 per
share, of which the vesting of 1,350,000 shares are subject to the completion of
certain performance based milestones as determined by the Board of Directors.
This option was granted outside of the approved plans. As of December 31, 1998,
300,000 shares under this option was exercisable.

In 1997, the Company adopted an employee stock purchase plan under which
eligible employees may elect to purchase shares of common stock at the lower of
85% of fair market value as of the first trading day of each quarterly
participation period, or as of the last trading day of each quarterly
participation period. In 1998 and 1997, employees purchased 54,023 shares and
16,017 shares, respectively, for aggregate proceeds of $41,000 and $32,000,
respectively. The Company has reserved 429,960 shares for future issuance under
its employee stock purchase plan.

The Company applies Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and the related interpretations in accounting
for its stock option plans. The disclosure requirement of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," was adopted by the Company in 1996. Had compensation cost of the
Company's common stock option plan been determined under SFAS No. 123, the
Company's net loss would have been increased to the following pro forma amounts:

Year Ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------

Net loss to common stockholders, as reported $(13,271,000) $(32,064,000) $(28,337,000)
Pro forma net loss to common stockholders $(16,566,000) $(34,946,000) $(30,594,000)

Net loss per common share, as reported $(0.24) $(0.63) $(0.59)
Pro forma net loss per common share $(0.29) $(0.68) $(0.63)

The average fair value per option of the options granted under the stock
option plans during 1998, 1997 and 1996 is estimated as $0.92, $2.10 and $3.35,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following assumptions for 1998, 1997 and 1996: dividend yield of zero,
volatility of 78.42%, 69.87% and 70.72%, respectively, risk-free interest rate
of 5.37%, 6.07% and 5.90%, respectively, and an expected life of 5 years. The
average fair value per option ascribed to the employee stock purchase plan
during 1998 and 1997 is estimated at $0.65 and $2.17, respectively on the date
of grant using the Black-Scholes option pricing model with the following
assumptions for 1998 and 1997: divided yield of zero, volatility of 84.75% and
50.20%, respectively, risk free interest rate of 4.88% and 5.13%, respectively,
and expected life of three months. Because the SFAS No. 123 method of accounting
is not required to be applied to options granted prior to January 1, 1995, the
resulting pro forma compensation charge may not be representative of that to be
expected in future years.

13. RELATED PARTY TRANSACTION:

Consulting services have been provided to the Company under an agreement
with the Chairman of the Board of Directors related to time spent in that
function on Company matters. Fees and expenses under this agreement were
$172,000 in 1998.

14. PENSION PLANS:

The Company maintains a defined contribution pension plan. The
contribution is determined by the Board of Directors each year and is based upon
a percentage of gross wages of eligible employees. The plan provides for vesting
over five years, with credit given for prior service. The Company also makes
contributions under a 401(k) plan in amounts which match up to 50% of the salary
deferred by the participants. Matching is capped at 6% of deferred salaries.
Total pension expense was $310,000, $405,000 and $328,000 for 1998, 1997 and
1996, respectively.

15. INCOME TAXES:

As of December 31, 1998, CYTOGEN had federal net operating loss
carryforwards of approximately $177 million. The Company also had federal and
state research and development tax credit carryforwards of approximately $5.4
million. The net operating loss and credit carryforwards began to expire in
1995.

The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been an
"ownership change". Such an "ownership change" as described in Section 382 of
the Internal Revenue Code may limit the Company's utilization of its net
operating loss and tax credit carryforwards.

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Based upon the Company's
loss history, a valuation allowance for deferred tax assets has been provided:

1998 1997
------------- -------------

Deferred tax assets:
Net operating loss carryforwards $ 60,300,000 $ 52,700,000
Capitalized research and development expenses 19,500,000 23,500,000
Research and development credit 5,400,000 5,000,000
Acquisition of in-process technology 1,200,000 3,800,000
Other, net 300,000 140,000
------------- -------------
Total deferred tax assets 86,700,000 85,140,000
Valuation allowance for deferred tax assets (86,700,000) (85,140,000)
------------- -------------
Net deferred tax assets $ -- $ --
============= =============

In 1995, CYTOGEN acquired CytoRad and Cellcor, both of which had net
operating loss carryforwards. Due to Section 382 limitations, approximately $10
million of CytoRad and $12.0 million of Cellcor carryforwards may be available
to offset future taxable income. A 100% valuation allowance was established on
the acquisition dates as realization of these tax assets is uncertain.

16. COMMITMENTS AND CONTINGENCIES:

The Company leases its facilities and certain equipment under
non-cancelable operating leases that expire at various times through 2002. Rent
expense incurred on these leases was $1.6 million, $1.8 million and $1.8 million
in 1998, 1997 and 1996, respectively. Minimum future obligations under the
operating leases are $3.6 million as of December 31, 1998 and will be paid as
follows: $990,000 in 1999, $1.1 million in 2000, $1.2 million in 2001, and
$288,000 in 2002.

The Company is obligated to make minimum future payments under research and
development contracts that expire at various times. As of December 31, 1998, the
minimum future payments under contracts are $120,000 in 1999 and $130,000 in
2000 and thereafter. In addition, the Company is obligated to pay
performance-based compensation to its marketing partner for ProstaScint and
royalties on revenues from commercial product sales including certain guaranteed
minimum payments.

EXHIBIT INDEX
-------------

Exhibit Sequentially
Number Description Numbered Page

10.23 Employment Agreement effective as of June 10, 1997 between
CYTOGEN Corporation and Donald F. Crane, Jr. 60

21 Subsidiaries of CYTOGEN Corporation 62

23 Consent of Arthur Andersen LLP 63

27 Financial Data Schedule (Submitted to SEC
only in electronic format)